HomeEquityHow equity becomes borrowing power
Your equity is the difference between what your home is worth and what you still owe on the mortgage. If your home is worth $500,000 and you owe $200,000, you have $300,000 in equity. Lenders typically let you borrow up to 80–85% of your home's value (minus your existing mortgage balance) through a HELOC.
Two phases: draw and repayment
A HELOC has two distinct stages. During the draw period (usually 10 years), you can borrow as much or as little as you need, up to your limit. You're often only required to pay interest on what you've drawn. Once the draw period ends, you enter the repayment period (typically 20 years), where you pay back principal plus interest.
HELOC vs. Home Equity Loan vs. Cash-Out Refinance
- HELOC — Revolving credit, variable rate, draw what you need. Best for ongoing or uncertain expenses.
- Home Equity Loan — Lump sum, fixed rate. Best when you know exactly what you need.
- Cash-Out Refinance — Replaces your existing mortgage with a larger one. Best when current rates beat your existing mortgage rate.
Who qualifies?
Most lenders look for at least 15–20% equity in your home, a credit score around 620 or higher, a manageable debt-to-income ratio (typically under 43%), and stable, verifiable income. The stronger your profile, the better your rate.