A home equity line of credit (HELOC) lets you borrow against the equity you have built in your home. With the average US homeowner sitting on over $300,000 in tappable equity as of mid-2026 according to ICE Mortgage Technology, HELOCs have become one of the most-searched financial products of the year — but they carry risks that many borrowers underestimate.
Current HELOC rates in July 2026
| Lender type | Rate range (July 2026) | Notes |
|---|---|---|
| National banks | 8.20% – 8.75% | Variable, tied to prime rate |
| Credit unions | 7.85% – 8.40% | Often better terms for members |
| Online lenders | 8.10% – 9.25% | Faster approval, higher ceiling |
| Average (all lenders) | 8.45% | Bankrate national average |
Why are HELOC rates this high? HELOCs are variable-rate products tied to the Prime Rate, which moves with the Federal Reserve's benchmark. With the Fed holding rates at 4.25–4.5% through mid-2026, the prime rate is 7.5% and most HELOCs are priced at prime + 0.5% to prime + 2.0%. Rates will fall when the Fed cuts — most forecasters expect one cut in Q4 2026.
How a HELOC works
A HELOC has two phases. During the draw period (typically 10 years), you can borrow up to your credit limit and make interest-only payments. During the repayment period (typically 20 years), you can no longer draw funds and must repay principal plus interest — often causing payment shock.
The maximum you can borrow is determined by your combined loan-to-value (CLTV) ratio. Most lenders allow up to 80–85% CLTV.
CLTV formula: (Existing mortgage balance + HELOC limit) / Home value. On a $600,000 home with a $350,000 mortgage, an 80% CLTV cap means: ($600,000 x 0.80) – $350,000 = $130,000 maximum HELOC.
Real cost worked example
Home value: $600,000 | Mortgage balance: $350,000 | HELOC drawn: $80,000 | Rate: 8.45% | Draw period: 10 years
| Period | Monthly payment | Calculation | Total paid |
|---|---|---|---|
| Draw period (10 yrs, interest only) | $563 | $80,000 x 8.45% / 12 | $67,560 |
| Repayment (20 yrs, P+I) | $694 | Full amortisation at same rate | $166,560 |
| Total repaid | — | — | $234,120 |
| Total interest cost | — | $234,120 – $80,000 | $154,120 |
HELOC vs home equity loan vs cash-out refinance
| Product | Rate type | Best for | Risk |
|---|---|---|---|
| HELOC | Variable | Ongoing expenses, flexibility | Rate rises increase payments |
| Home equity loan | Fixed | One-time large expense | Higher initial rate than HELOC |
| Cash-out refinance | Fixed | Low rate environments | Resets full mortgage term |
At current rates, a cash-out refinance is generally unattractive — it would mean replacing a sub-4% mortgage many homeowners locked in 2020–2021 with a 6.8% rate on the entire balance. A HELOC or home equity loan on just the borrowed amount is far cheaper for most owners.
Qualifying for a HELOC in 2026
Most lenders require: credit score 680+ (720+ for best rates), debt-to-income ratio below 43%, at least 15–20% equity remaining after the HELOC, and proof of stable income. The home must be your primary residence or second home — investment properties are typically excluded or priced 1.5–2% higher.
Tax deductibility
HELOC interest is only tax-deductible if the funds are used to buy, build, or substantially improve the home securing the loan. Using HELOC funds to pay for a holiday, consolidate credit card debt, or invest in stocks does not qualify for the mortgage interest deduction. Keep records of how borrowed funds are used.
Common mistakes to avoid
Treating draw period payments as the real cost. Interest-only payments of $563/month feel manageable until the repayment period starts and payments jump to $694/month — a 23% increase with no new spending. Budget for this from day one.
Drawing more than you need. Because a HELOC is a credit line, it is psychologically easy to draw incrementally. Each draw adds to your balance and increases your repayment period exposure.
Not stress-testing for rate increases. At prime + 1.5%, a 1% Fed rate increase raises your HELOC rate from 9% to 10% and adds $67/month to a $80,000 balance. Model worst-case rate scenarios before borrowing.
Using a HELOC for depreciating assets. Borrowing against your home to buy a car or take a holiday uses secured debt for a depreciating or consumed asset. Your home is collateral — default means losing it.
Use our Mortgage Calculator to model how a HELOC affects your total home debt, and the Rent vs Buy Analyser to understand your current equity position.