Quick answer
A home equity line of credit (HELOC) is a revolving line of credit secured by your home, usually as a second mortgage. It works much like a credit card. You can borrow up to a limit, repay, and borrow again during the draw period, and you pay interest only on what you have drawn.
Most HELOCs have variable rates, and your home is the collateral. Valor Mortgage doesn’t offer HELOCs; banks and credit unions do.
Rules on this page were verified in . Lender HELOC terms vary. See the CFPB’s HELOC explainer.
At a glance: the HELOC
- What it is: a reusable credit line secured by your home
- How much: commonly up to 80%–90% of value, minus your mortgage
- Phases: draw period (often 10 years), then repayment
- Rate: usually variable, so payments can rise
- Alternatives: home equity loan, cash-out refinance, savings
- Where to get one: banks and credit unions
What is home equity?
Equity is the difference between what your home is worth and what you owe on it. If your home is worth $350,000 and you owe $200,000, you have $150,000 in equity. Equity isn’t cash, though. To use it without selling, you borrow against it.
How does a HELOC work?
A HELOC gives you a credit limit backed by your home. It has two phases:
- Draw period, often 10 years: borrow what you need, repay, and borrow again. Many plans require only interest payments on the balance during this phase.
- Repayment period, often 10 to 20 years: you can no longer draw, and payments include principal, so they usually go up. Some plans instead require the full balance at the end of the draw period as a balloon payment.
Most HELOC rates are variable, tied to an index such as the prime rate plus a margin, so your payment can change even if you don’t borrow more. Some banks offer an introductory rate for the first months.
How much can you borrow with a HELOC?
Lenders limit your combined loan-to-value (CLTV): your mortgage plus the HELOC limit, divided by the home’s value. Common caps run from 80% to 90%. On an illustrative $350,000 Robertson County home with $200,000 owed:
| CLTV cap | Total debt allowed | Maximum HELOC line |
|---|---|---|
| 80% | $280,000 | $80,000 |
| 85% | $297,500 | $97,500 |
| 90% | $315,000 | $115,000 |
Illustrative example only. Actual interest rates and APRs vary based on loan program, borrower qualifications, property, market conditions and other factors. The line you’re offered also depends on credit, income and the lender’s valuation.
For the application steps and documents, see how to get a HELOC.
What are the pros and cons of a HELOC?
| Pros | Cons |
|---|---|
| You keep your existing first mortgage and its rate | Your home is the collateral; falling behind can lead to foreclosure |
| Borrow only what you need, when you need it | Variable rates mean payments can rise |
| Usually lower closing costs than a refinance; some banks cover the appraisal and title | Payments jump when the draw period ends, or a balloon comes due |
| Often lower rates than unsecured credit cards or personal loans | The lender can freeze or cut the line if your home’s value drops significantly |
What are the alternatives to a HELOC?
| Option | How it works | Fits best when |
|---|---|---|
| Savings | Pay cash; no new debt | You can cover it and keep a healthy reserve |
| HELOC | Variable-rate line in second position | Costs come in stages or the amount is uncertain |
| Home equity loan | Fixed amount and fixed rate in second position | You know the amount and want a payment that won’t change |
| Cash-out refinance | A new, larger first mortgage; you take the difference in cash | Larger amounts, such as consolidating high-interest debt, especially when your current rate isn’t much lower than today’s |
A cash-out refinance has full mortgage closing costs, including origination, title and the appraisal, which can run several thousand dollars. It rarely makes sense for a small project when you already have a low first-mortgage rate. For smaller amounts, I send people to a local bank or credit union they already work with. Valor Mortgage arranges cash-out refinances but doesn’t offer HELOCs or home equity loans.
HELOC FAQ
Is a HELOC a second mortgage?
Usually, yes. A HELOC is recorded behind your first mortgage, which is why it’s often called a second mortgage. If you own your home free and clear, a HELOC can sit in first position.
What can a HELOC be used for?
Almost anything: renovations, a roof, tuition, a wedding, or paying off higher-interest debt. Under IRS Publication 936, the interest is deductible only to the extent the money buys, builds or substantially improves the home securing the line. Ask a tax advisor.
What happens to a HELOC when I sell my home?
The balance is paid off from the sale proceeds at closing, along with your first mortgage, and the line is closed. If you refinance your first mortgage, the HELOC must either be paid off or have its lender agree to stay in second position.
What is the difference between a HELOC and a home equity loan?
A HELOC is a revolving line with a usually variable rate: you draw as needed. A home equity loan pays one lump sum at a usually fixed rate and fixed payment. The loan’s rate may be a little higher because it’s less flexible.
Does Valor Mortgage offer HELOCs?
No. HELOCs and home equity loans come mostly from banks and credit unions. Valor Mortgage arranges cash-out refinances, and can quote one so you can compare it with the HELOC offers you receive.
Where these rules come from
| Rule | Source | As of |
|---|---|---|
| How HELOCs work; draw and repayment periods | CFPB, Ask CFPB · HELOC brochure | Retrieved Oct 26, 2026 |
| HELOC disclosures and freezing a line | Regulation Z §1026.40 | Retrieved Oct 26, 2026 |
| Interest deductibility | IRS Publication 936 | Current edition |
| HELOC vs. home equity loan vs. cash-out refinance | Christopher Armantrout on WSGI One Street Over | Oct 19, 2026 |
Related guides
- How do you get a HELOC?
- Cash-out refinancing with Valor Mortgage.
- Debt consolidation with your home equity.
- What is a mortgage refinance?
- Roofers in Nashville, if a roof is why you’re tapping equity.
- About Christopher Armantrout, the licensed originator who wrote this page.
Weighing a HELOC against a cash-out refinance? Talk to Valor Mortgage.
If you’re pulling out a larger amount, or paying off high-interest debt, I’ll quote a cash-out refinance so you can set it beside your bank’s HELOC offer and compare the total cost. If a HELOC from your bank is the better fit, I’ll tell you that too.
Call me at (615) 671-9178. That’s the fastest way to get a straight answer on what you’d qualify for and whether a cash-out refinance or your bank’s HELOC fits better.
If it’s after hours, grab a time on my calendar. Pick a slot that works and I’ll call you then.
If your life is too chaotic for a phone call right now — I understand — start an application and I’ll review it and reach out with a plan.
Valor Mortgage, LLC · Christopher Armantrout, Mortgage Loan Originator, NMLS #1210804 · Valor Mortgage, LLC is powered by Encore Lending Group, LLC, NMLS #1249911 · Licensed in Tennessee · Equal Housing Opportunity
724 S Main St, Springfield, TN 37172 · (615) 671-9178 · christopher@valor.mortgage · NMLS Consumer Access
The dollar figures on this page are illustrative examples for general information only and are not an offer, a rate quote, or a commitment to lend. Actual interest rates and APRs vary based on loan program, borrower qualifications, property, market conditions and other factors. Program fees, limits and terms are set by the agencies named above and change without notice; all loans are subject to credit approval, income verification and property appraisal. Not all applicants will qualify.