As you pay down a mortgage and as home values change, the share of the home you actually own grows. That's your equity. A home equity line of credit, or HELOC, lets you borrow against it. It's one of the cheapest ways to borrow, and also one that's easy to lose track of.
What equity is
Equity is the home's value minus what you owe on it. A home worth $800,000 with a $350,000 mortgage has $450,000 in equity.
You can't borrow all of it. Federal rules for banks and other federally regulated lenders set two limits, and most other lenders follow them too: total borrowing secured by the home can't exceed 80% of its value, and the revolving HELOC portion on its own can't exceed 65%.
On the $800,000 home, 80% is $640,000. Subtract the $350,000 mortgage and up to $290,000 could be available as a HELOC. If the mortgage were only $50,000, the 80% limit would leave $590,000, but the 65% cap on the HELOC itself would hold it to $520,000.
Try it
How much equity can you borrow?
The bar is the whole home. Change its value and the mortgage to see what the 80% and 65% limits leave available.
Your equity
$450,000
Available as a HELOC
$290,000
What limits it
80% total limit
- Mortgage: $350,000
- Available as a HELOC: $290,000
- Equity that can't be borrowed: $160,000
How a HELOC works
A HELOC works like a large line of credit secured on your home. You borrow what you need, when you need it, up to the limit, and pay interest only on what you've used. Rates are variable, usually set as prime plus a margin, often around 0.5% to 1%.
Many HELOCs only require interest-only payments. Borrow $50,000 at 4.95% and the minimum is about $206 a month, but paying just that means the balance never goes down. The debt stays until you choose to repay it, or until the home is sold.
Many lenders offer HELOCs combined with the mortgage, sometimes called a readvanceable mortgage. As you pay the mortgage down, the HELOC limit grows by the same amount.
HELOC or refinance?
A refinance replaces your mortgage with a larger one. It has a set payment that pays the borrowing off over time, and if you're partway through a term, it may mean paying a penalty to break the current mortgage.
A HELOC leaves the mortgage alone, so there's no penalty, and it's flexible: borrow and repay as you like. The trade-offs are a variable rate and the discipline it takes to pay down a balance that only asks for interest. Our post on HELOC vs refinance compares the costs over five years.
What people use them for
Common uses include renovations, consolidating higher-interest debt, a down payment on another property, or a backup for emergencies. The paying down debt lesson covers what consolidation changes and what it doesn't.
Risks worth knowing
A HELOC is secured by your home, so falling behind puts the home at risk. The rate moves with prime, so payments rise when rates do. Lenders can reduce or freeze an unused limit. And if you sell the home, any HELOC balance is repaid from the sale.
It's also easy to treat available credit as savings. Some people keep a HELOC open but unused as an emergency backstop, and some prefer not to have one at all for exactly that reason. Both are reasonable choices.
Where to go next
Equity also matters when you move, because it's what you carry into the next home. The next lesson covers moving with a mortgage.
Worked figures are estimates based on the example inputs shown, checked October 11, 2026. Rates, rules and lender policies change, and your own numbers will differ. This is educational information, not financial advice.