November 7, 2025 • 10 min read
What Is a HELOC?
Smart homeowners are leveraging their home equity to consolidate debt, fund renovations, and build wealth. Here's everything you need to know.
Understanding your home's value is the first step to unlocking its potential
A home equity line of credit (HELOC) is a type of loan that allows you to access the equity in your home. Equity is the value of your home minus what you owe to your mortgage lender.
Accessing your equity using a HELOC can be an affordable way to accomplish important financial goals, including consolidating debt or financing a home improvement.
This guide will explain what a home equity line of credit is, the pros and cons of this borrowing approach, and whether you're likely to qualify for a HELOC so you can make informed choices about whether applying for one is right for you.
What Is a HELOC?
A HELOC, or home equity line of credit, is a flexible way to borrow against the equity in your home.
A HELOC works like a credit card. You get access to a line of credit and can use as much or as little of your available credit as you want. You make payments only on the amount you have borrowed, and you are usually charged interest at a variable rate.
There are big differences between a HELOC and a standard credit card, though.
- A HELOC uses the equity in your home as collateral, which means that the home secures the loan, and if you don't pay the bills, the lender could foreclose.
- Because it is a secured debt, it's less risky for lenders, so the HELOC interest rate you pay is much lower than the rate you pay on typical consumer credit cards.
How a HELOC Works
You might be wondering how a HELOC works, so we’ll go over what borrowing with this type of loan looks like.
1
Qualifying for a Home Equity Line of Credit
You’re eligible for a HELOC only if you have equity in your home. This means your home must be worth more than you owe.
Many lenders only allow you to borrow 80% to 90% of what your home is worth. If your home is worth $400,000 and you currently owe $300,000, you have $100,000 in equity. However, you may only qualify for a $20,000 HELOC if your lender requires you to keep your total loan value at 80% or less of your home's market value.
Your credit score, income, and other financial credentials also play a role in determining if you qualify.
2
Borrowing with a Home Equity Line of Credit
When you borrow using a home equity line of credit, you must pay HELOC fees and closing costs, which can range from 2% to 5% of the loan amount. These costs cover things like appraisals and origination fees. While some lenders offer options that allow you to pay no closing costs up front, those loans may come with higher interest rates or prepayment penalties.
You will find out how big your line of credit is when you're approved to borrow. You can use as much or as little of your line of credit as you'd like at any given time during the draw period. For example, if you had a $50,000 HELOC, you could borrow $10,000 to fund a home improvement project, then borrow another $5,000 later to consolidate debt.
HELOCs are typically structured with a draw period, during which you can access your line of credit. During your draw period, you may have the option to make interest-only payments. This keeps monthly payments affordable, although it does mean your balance won't go down.
At the end of your draw period, you enter your repayment period. You can't borrow at this point, and your monthly payments will include both principal and interest, so you can pay off your balance in full.
3
HELOC interest rates
When you borrow, you will be charged interest. Depending on your lender, you may have a choice of a:
- HELOC with a fixed rate, which means the rate and payments remain the same.
- HELOC with a variable rate, which means the rate is tied to a financial index and can change over time
Most HELOCS have variable rates. However, some lenders allow part of the debt to be converted to a fixed-rate loan, so you have more predictability.
Remember, you only pay interest when you actually draw from your line of credit. If you have a $50,000 line of credit but have only borrowed $4,000, you only pay interest on the $4,000 in debt.
Strategic financial planning helps maximize the value of your home equity
Pros and Cons of a HELOC
If you are considering a HELOC, there are both HELOC pros and cons to think about. Here are some of the biggest advantages and disadvantages.
Pros of a Home Equity Line of Credit
Here are some of the biggest benefits of a HELOC.
- Flexibility: HELOCs provide you with much more flexibility than other loan types, including a home equity loan. With a HELOC, you borrow as much as you want, when you want it, instead of getting a lump sum up front and being on the hook for all the interest.
- Your current mortgage isn't affected: Your existing loan won't change when you get a HELOC, which is a major benefit if you currently have a low interest rate.
- Lower interest rates: HELOCs typically have lower rates than other kinds of consumer debt, including credit cards and personal loans.
- Potential to deduct interest: Your interest costs may be tax-deductible if you use the HELOC for qualifying home improvements and itemize your taxes.
"HELOCs typically have lower rates than other kinds of consumer debt, including credit cards and personal loans."
Cons of a home equity line of credit
Here are some of the biggest downsides.
- Variable rate loans are unpredictable: You could face rate increases and higher monthly payments.
- You're putting your home at risk: If you don't pay your HELOC, your lender could foreclose. This is one of the biggest risks of borrowing against your home.
- You need equity in your home: Not everyone can qualify for a HELOC as equity is the primary HELOC eligibility requirement.
- Closing costs can be high: The closing costs of a HELOC can be higher than those of other kinds of loans. You'll need to consider these HELOC fees and closing costs when deciding if borrowing is affordable.
Is a HELOC Right for You?
If you have equity in your home and want a flexible way to access it, a HELOC could be your best option. Ultimately, though, the right borrowing choice comes down to your financial goals, your eligibility to borrow, and the offered rates.
Talking with a mortgage loan professional can help you understand your borrowing options, including the rates and terms you'd be offered if you apply for a HELOC. Your mortgage loan officer can work with you to find the right borrowing solution and get your application underway. Call today to get started.
Your equity is about to work harder
than your debt.
Let’s flip the script. You’ve built it. Now, leverage it.
Start My Smart Money Move
Terms of Service
Privacy Policy
Licenses
© Freedom Mortgage Corporation
Freedom Mortgage
951 Yamato Road Suite 175Boca Raton, FL 33431
NMLS #2767: NMLS consumer access.
For licensing information, please go to www.nmlsconsumeraccess.org.
Freedom Mortgage Home Equity Line of Credit is available in AK, AL, AR, AZ, CT, DE, FL, GA, IA, ID, IN, KS, KY, LA, MI, MN, MO, MS, MT, NC, ND, NE, NH, NV, OH, OK, OR, PA, SC, SD, TN, VA, WY.
For Customer Service or Complaints, email us at loans@freedom.myfastheloc.com, or call +1 (888) 586-0496 between Monday-Friday from 6am-9pm PT and Saturday-Sunday from 6am-5pm PT.
This site is not authorized by the New York State Department of Financial Services. No mortgage loan applications for properties located in the State of New York will be accepted through this site.
- A Freedom Mortgage HELOC is secured with your home as collateral, whereas personal loans and credit cards are not.
- To check the rates and terms you qualify for, we will conduct a soft credit pull that will not affect your credit score. However, if you continue and submit an application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
- Approval may be granted in five minutes but is ultimately subject to verification of income and employment, as well as verification that your property is in at least average condition with a property condition report. Five business day funding timeline assumes closing the loan with our remote online notary. Funding timelines may be longer for loans secured by properties located in counties that do not permit recording of e-signatures or that otherwise require an in-person closing, or that require a waiting period prior to closing.
- The Freedom Mortgage Home Equity Line of Credit is an open-end product where the full loan amount (minus the origination fee) will be 100% drawn at the time of origination. The initial amount funded at origination will be based on a fixed rate; however, this product contains an additional draw feature. As the borrower repays the balance on the line, the borrower may make additional draws during the draw period. If the borrower elects to make an additional draw, the interest rate for that draw will be set as of the date of the draw and will be based on an Index, which is the Prime Rate published in the Wall Street Journal for the calendar month preceding the date of the additional draw, plus a fixed margin. Accordingly, the fixed rate for any additional draw may be higher than the fixed rate for the initial draw.
November 7, 2025 • 10 min read
What Is a HELOC?
Smart homeowners are leveraging their home equity to consolidate debt, fund renovations, and build wealth. Here's everything you need to know.
Understanding your home's value is the first step to unlocking its potential
A home equity line of credit (HELOC) is a type of loan that allows you to access the equity in your home. Equity is the value of your home minus what you owe to your mortgage lender.
Accessing your equity using a HELOC can be an affordable way to accomplish important financial goals, including consolidating debt or financing a home improvement.
This guide will explain what a home equity line of credit is, the pros and cons of this borrowing approach, and whether you're likely to qualify for a HELOC so you can make informed choices about whether applying for one is right for you.
What Is a HELOC?
A HELOC, or home equity line of credit, is a flexible way to borrow against the equity in your home.
A HELOC works like a credit card. You get access to a line of credit and can use as much or as little of your available credit as you want. You make payments only on the amount you have borrowed, and you are usually charged interest at a variable rate.
There are big differences between a HELOC and a standard credit card, though.
- A HELOC uses the equity in your home as collateral, which means that the home secures the loan, and if you don't pay the bills, the lender could foreclose.
- Because it is a secured debt, it's less risky for lenders, so the HELOC interest rate you pay is much lower than the rate you pay on typical consumer credit cards.
How a HELOC Works
You might be wondering how a HELOC works, so we’ll go over what borrowing with this type of loan looks like.
1
Qualifying for a Home Equity Line of Credit
You’re eligible for a HELOC only if you have equity in your home. This means your home must be worth more than you owe.
Many lenders only allow you to borrow 80% to 90% of what your home is worth. If your home is worth $400,000 and you currently owe $300,000, you have $100,000 in equity. However, you may only qualify for a $20,000 HELOC if your lender requires you to keep your total loan value at 80% or less of your home's market value.
Your credit score, income, and other financial credentials also play a role in determining if you qualify.
2
Borrowing with a Home Equity Line of Credit
When you borrow using a home equity line of credit, you must pay HELOC fees and closing costs, which can range from 2% to 5% of the loan amount. These costs cover things like appraisals and origination fees. While some lenders offer options that allow you to pay no closing costs up front, those loans may come with higher interest rates or prepayment penalties.
You will find out how big your line of credit is when you're approved to borrow. You can use as much or as little of your line of credit as you'd like at any given time during the draw period. For example, if you had a $50,000 HELOC, you could borrow $10,000 to fund a home improvement project, then borrow another $5,000 later to consolidate debt.
HELOCs are typically structured with a draw period, during which you can access your line of credit. During your draw period, you may have the option to make interest-only payments. This keeps monthly payments affordable, although it does mean your balance won't go down.
At the end of your draw period, you enter your repayment period. You can't borrow at this point, and your monthly payments will include both principal and interest, so you can pay off your balance in full.
3
HELOC interest rates
When you borrow, you will be charged interest. Depending on your lender, you may have a choice of a:
- HELOC with a fixed rate, which means the rate and payments remain the same.
- HELOC with a variable rate, which means the rate is tied to a financial index and can change over time
Most HELOCS have variable rates. However, some lenders allow part of the debt to be converted to a fixed-rate loan, so you have more predictability.
Remember, you only pay interest when you actually draw from your line of credit. If you have a $50,000 line of credit but have only borrowed $4,000, you only pay interest on the $4,000 in debt.
Strategic financial planning helps maximize the value of your home equity
Pros and Cons of a HELOC
If you are considering a HELOC, there are both HELOC pros and cons to think about. Here are some of the biggest advantages and disadvantages.
Pros of a Home Equity Line of Credit
Here are some of the biggest benefits of a HELOC.
- Flexibility: HELOCs provide you with much more flexibility than other loan types, including a home equity loan. With a HELOC, you borrow as much as you want, when you want it, instead of getting a lump sum up front and being on the hook for all the interest.
- Your current mortgage isn't affected: Your existing loan won't change when you get a HELOC, which is a major benefit if you currently have a low interest rate.
- Lower interest rates: HELOCs typically have lower rates than other kinds of consumer debt, including credit cards and personal loans.
- Potential to deduct interest: Your interest costs may be tax-deductible if you use the HELOC for qualifying home improvements and itemize your taxes.
"HELOCs typically have lower rates than other kinds of consumer debt, including credit cards and personal loans."
Cons of a home equity line of credit
Here are some of the biggest downsides.
- Variable rate loans are unpredictable: You could face rate increases and higher monthly payments.
- You're putting your home at risk: If you don't pay your HELOC, your lender could foreclose. This is one of the biggest risks of borrowing against your home.
- You need equity in your home: Not everyone can qualify for a HELOC as equity is the primary HELOC eligibility requirement.
- Closing costs can be high: The closing costs of a HELOC can be higher than those of other kinds of loans. You'll need to consider these HELOC fees and closing costs when deciding if borrowing is affordable.
Is a HELOC Right for You?
If you have equity in your home and want a flexible way to access it, a HELOC could be your best option. Ultimately, though, the right borrowing choice comes down to your financial goals, your eligibility to borrow, and the offered rates.
Talking with a mortgage loan professional can help you understand your borrowing options, including the rates and terms you'd be offered if you apply for a HELOC. Your mortgage loan officer can work with you to find the right borrowing solution and get your application underway. Call today to get started.
Your equity is about to work harder
than your debt.
Let’s flip the script. You’ve built it. Now, leverage it.
Start My Smart Money Move
Terms of Service
Privacy Policy
Licenses
© Freedom Mortgage Corporation
Freedom Mortgage
951 Yamato Road Suite 175Boca Raton, FL 33431
NMLS #2767: NMLS consumer access.
For licensing information, please go to www.nmlsconsumeraccess.org.
Freedom Mortgage Home Equity Line of Credit is available in AK, AL, AR, AZ, CT, DE, FL, GA, IA, ID, IN, KS, KY, LA, MI, MN, MO, MS, MT, NC, ND, NE, NH, NV, OH, OK, OR, PA, SC, SD, TN, VA, WY.
For Customer Service or Complaints, email us at loans@freedom.myfastheloc.com, or call +1 (888) 586-0496 between Monday-Friday from 6am-9pm PT and Saturday-Sunday from 6am-5pm PT.
This site is not authorized by the New York State Department of Financial Services. No mortgage loan applications for properties located in the State of New York will be accepted through this site.
- A Freedom Mortgage HELOC is secured with your home as collateral, whereas personal loans and credit cards are not.
- To check the rates and terms you qualify for, we will conduct a soft credit pull that will not affect your credit score. However, if you continue and submit an application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
- Approval may be granted in five minutes but is ultimately subject to verification of income and employment, as well as verification that your property is in at least average condition with a property condition report. Five business day funding timeline assumes closing the loan with our remote online notary. Funding timelines may be longer for loans secured by properties located in counties that do not permit recording of e-signatures or that otherwise require an in-person closing, or that require a waiting period prior to closing.
- The Freedom Mortgage Home Equity Line of Credit is an open-end product where the full loan amount (minus the origination fee) will be 100% drawn at the time of origination. The initial amount funded at origination will be based on a fixed rate; however, this product contains an additional draw feature. As the borrower repays the balance on the line, the borrower may make additional draws during the draw period. If the borrower elects to make an additional draw, the interest rate for that draw will be set as of the date of the draw and will be based on an Index, which is the Prime Rate published in the Wall Street Journal for the calendar month preceding the date of the additional draw, plus a fixed margin. Accordingly, the fixed rate for any additional draw may be higher than the fixed rate for the initial draw.
November 7, 2025 • 10 min read
What Is a HELOC?
Smart homeowners are leveraging their home equity to consolidate debt, fund renovations, and build wealth. Here's everything you need to know.
Understanding your home's value is the first step to unlocking its potential
A home equity line of credit (HELOC) is a type of loan that allows you to access the equity in your home. Equity is the value of your home minus what you owe to your mortgage lender. As home values usually increase over time, this equity can be a great funding resource.
Accessing your equity using a HELOC can be an affordable way to accomplish important financial goals, including consolidating debt or financing home improvements.
This guide will explain what a home equity line of credit is, the pros and cons of this borrowing approach, and whether you're likely to qualify for a HELOC, so you can make informed choices about whether applying for one is right for you.
What Is a HELOC?
A HELOC, or home equity line of credit, is a flexible way to borrow against the equity in your home.
A HELOC works like a credit card. You get access to a line of credit and can use as much or as little of your available credit as you want. You make payments only on the amount you have borrowed, and you are usually charged interest at a variable rate.
There are big differences between a HELOC and a standard credit card, though.
- A HELOC uses the equity in your home as collateral, which means that the home secures the loan, and if you don't pay the bills, the lender could foreclose.
- Because it is a secured debt, it's less risky for lenders, so the HELOC interest rate you pay is much lower than the rate you pay on typical consumer credit cards.
How a HELOC Works
You might be wondering how a HELOC works, so we’ll go over what borrowing with this type of loan looks like.
1
Qualifying for a Home Equity Line of Credit
You’re eligible for a HELOC only if you have equity in your home. This means your home must be worth more than you owe.
Many lenders only allow you to borrow 80% to 90% of what your home is worth. If your home is worth $400,000 and you currently owe $300,000, you have $100,000 in equity. However, you may only qualify for a $20,000 HELOC if your lender requires you to keep your total loan value at 80% or less of your home's market value.
Your credit score, income, and other financial credentials also play a role in determining if you qualify.
2
Borrowing with a Home Equity Line of Credit
When you borrow using a home equity line of credit, you must pay HELOC fees and closing costs, which can range from 2% to 5% of the loan amount. These costs cover things like appraisals and origination fees. While some lenders offer options that allow you to pay no closing costs up front, those loans may come with higher interest rates or prepayment penalties.
You will find out how big your line of credit is when you're approved to borrow. You can use as much or as little of your line of credit as you'd like at any given time during the draw period. For example, if you had a $50,000 HELOC, you could borrow $10,000 to fund a home improvement project, then borrow another $5,000 later to consolidate debt.
HELOCs are typically structured with a draw period, during which you can access your line of credit. During your draw period, you may have the option to make interest-only payments. This keeps monthly payments affordable, although it does mean your balance won't go down.
At the end of your draw period, you enter your repayment period. You can't borrow at this point, and your monthly payments will include both principal and interest, so you can pay off your balance in full.
3
HELOC interest rates
When you borrow, you will be charged interest. Depending on your lender, you may have a choice of a:
- HELOC with a fixed rate, which means the rate and payments remain the same.
- HELOC with a variable rate, which means the rate is tied to a financial index and can change over time.
Most HELOCS have variable rates. However, some lenders allow part of the debt to be converted to a fixed-rate loan, so you have more predictability.
Remember, you only pay interest on what you draw from your line of credit. If you have a $50,000 line of credit but have only borrowed $4,000, you only pay interest on the $4,000.
Strategic financial planning helps maximize the value of your home equity
Pros and Cons of a HELOC
If you are considering a HELOC, there are both HELOC pros and cons to think about. Here are some of the biggest advantages and disadvantages.
Pros of a Home Equity Line of Credit
Here are some of the biggest benefits of a HELOC.
- Flexibility: HELOCs provide you with much more flexibility than other loan types, including a home equity loan. With a HELOC, you borrow as much as you want, when you want it, instead of getting a lump sum up front and being on the hook for all the interest.
- Your current mortgage isn't affected: Your existing loan won't change when you get a HELOC, which is a major benefit if you currently have a low interest rate.
- Lower interest rates: HELOCs typically have lower rates than other kinds of consumer debt, including credit cards and personal loans.
- Potential to deduct interest: Your interest costs may be tax-deductible if you use the HELOC for qualifying home improvements and itemize your taxes.
"HELOCs typically have lower rates than other kinds of consumer debt, including credit cards and personal loans."
Cons of a Home Equity Line of Credit
Here are some of the biggest downsides.
- Variable rate loans are unpredictable: You could face rate increases and higher monthly payments.
- You're putting your home at risk: If you don't pay your HELOC, your lender could foreclose. This is one of the biggest risks of borrowing against your home.
- You need equity in your home: Not everyone can qualify for a HELOC as equity is the primary HELOC eligibility requirement.
- Closing costs can be high: The closing costs of a HELOC can be higher than those of other kinds of loans. You'll need to consider these HELOC fees and closing costs when deciding if borrowing is affordable.
Is a HELOC Right for You?
If you have equity in your home and want a flexible way to access it, a HELOC could be your best option. Ultimately, though, the right borrowing choice comes down to your financial goals, your eligibility to borrow, and the offered rates.
Talking with a mortgage loan professional can help you understand your borrowing options, including the rates and terms you'd be offered if you apply for a HELOC. Your mortgage loan officer can work with you to find the right borrowing solution and get your application underway. Call today to get started.
Your equity is about to work harder
than your debt.
Let’s flip the script. You’ve built it. Now, leverage it.
Start My Smart Money Move
Terms of Service
Privacy Policy
Licenses
© Freedom Mortgage Corporation
Freedom Mortgage
951 Yamato Road Suite 175Boca Raton, FL 33431
NMLS #2767: NMLS consumer access.
For licensing information, please go to www.nmlsconsumeraccess.org.
Freedom Mortgage Home Equity Line of Credit is available in AK, AL, AR, AZ, CT, DE, FL, GA, IA, ID, IN, KS, KY, LA, MI, MN, MO, MS, MT, NC, ND, NE, NH, NV, OH, OK, OR, PA, SC, SD, TN, VA, WY.
For Customer Service or Complaints, email us at loans@freedom.myfastheloc.com, or call +1 (888) 586-0496 between Monday-Friday from 6am-9pm PT and Saturday-Sunday from 6am-5pm PT.
This site is not authorized by the New York State Department of Financial Services. No mortgage loan applications for properties located in the State of New York will be accepted through this site.
- A Freedom Mortgage HELOC is secured with your home as collateral, whereas personal loans and credit cards are not.
- To check the rates and terms you qualify for, we will conduct a soft credit pull that will not affect your credit score. However, if you continue and submit an application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
- Approval may be granted in five minutes but is ultimately subject to verification of income and employment, as well as verification that your property is in at least average condition with a property condition report. Five business day funding timeline assumes closing the loan with our remote online notary. Funding timelines may be longer for loans secured by properties located in counties that do not permit recording of e-signatures or that otherwise require an in-person closing, or that require a waiting period prior to closing.
- The Freedom Mortgage Home Equity Line of Credit is an open-end product where the full loan amount (minus the origination fee) will be 100% drawn at the time of origination. The initial amount funded at origination will be based on a fixed rate; however, this product contains an additional draw feature. As the borrower repays the balance on the line, the borrower may make additional draws during the draw period. If the borrower elects to make an additional draw, the interest rate for that draw will be set as of the date of the draw and will be based on an Index, which is the Prime Rate published in the Wall Street Journal for the calendar month preceding the date of the additional draw, plus a fixed margin. Accordingly, the fixed rate for any additional draw may be higher than the fixed rate for the initial draw.