Home equity line of credit

How the limit is set

Equity is the difference between what your property is worth and what you owe against it. A standalone home equity line is generally limited to 65% of value, and a line combined with a mortgage on the same property is generally limited to 80% in total.

Being approved for a limit is not an instruction to use it. The useful property of a HELOC is that an unused limit costs nothing — it sits there for the roof, the transmission, or the three months between jobs.

The trade-off to understand

HELOC rates are variable and move with the lender’s prime rate, so the payment is not fixed. The minimum payment is typically interest only, which keeps monthly cost low and means the balance does not reduce unless you make it reduce. That combination is why HELOC balances tend to persist for years.

And it is secured against your home. Credit card debt is an unpleasant problem; secured debt you cannot service is a different category of problem. If the plan is to clear a balance over a defined period, a fixed-term second mortgage with a real amortization often costs less overall and actually ends.

What it is genuinely good for

Renovations funded in stages, where you draw as the trades invoice. A deposit bridge between buying and selling. A self-funded emergency reserve. Tuition or medical costs spread across a few years.