A HELOC, explained by someone who used to write them at a bank
A home equity line of credit is usually the cheapest way to borrow against your house — and most of the time your own bank or credit union will price it better than I can. Here is how the product actually works, what it costs in Pennsylvania, Florida and Texas, and when it is worth calling me instead.
A credit card secured by your house, priced off Prime
A HELOC is revolving credit. You are approved for a limit, you draw what you need when you need it, you pay interest only on what you have actually drawn, and as you repay you can borrow again. That is the whole idea, and it is what separates a line from a loan.
The rate is variable. Nearly every HELOC in the country is priced at the Wall Street Journal Prime Rate plus a margin, and there is a regulatory reason for that: a lender may only change your rate based on an index it does not control and that is available to the public. Prime is the obvious candidate. Your margin is where your credit, your combined loan-to-value and the lender’s appetite show up.
| Where things stand | Rate |
|---|---|
| WSJ Prime Rate (unchanged since December 2025) | 6.75% |
| Average HELOC, national | 7.44% |
| Home equity loan, fixed, 10-year | 8.25% |
| Home equity loan, fixed, 15-year | 8.22% |
Averages as of 5 August 2026. Advertised ranges start near 4%, but the bottom of that range is almost always an introductory rate that expires in six to twelve months. Ask what the rate becomes after it ends.
A HELOC is open-end credit, which means it sits outside a lot of the machinery you may remember from your purchase loan. No Loan Estimate, no Closing Disclosure, no ability-to-repay rule. That makes it faster and cheaper to close. It also means the comparison shopping is on you, because there is no standardized form lining the offers up side by side.
Two dates decide what this really costs you
Every HELOC has a draw period and a repayment period. The draw period is usually ten years, sometimes five. During it you can borrow and reborrow, and on most plans the required payment is interest only.
When the draw period ends, the line closes to new borrowing and the balance amortizes over the repayment period, typically ten to twenty years. This is where people get hurt. A borrower paying interest only on $80,000 at 7.44% is sending about $496 a month. The day repayment starts on a fifteen-year schedule, that payment becomes roughly $739 — and nothing about their life changed to prepare for it.
Three questions worth asking before you sign
1. Is there a balloon at the end of the draw? Some plans do not amortize at all. They require the entire outstanding balance in one payment when the draw period closes. That is legal, it is disclosed, and it is easy to miss.
2. What is the lifetime rate cap?
Federal law requires every HELOC to state a maximum rate it can ever reach. That number is the honest worst case, and it is the one to run your payment against. Periodic caps — a limit on how far the rate can move in any single adjustment — are not required at all. Many HELOCs do not have one. Ask.
3. Can the lender freeze or reduce the line?
Yes, and the agreement will say so. If your property value drops materially, or your financial circumstances change, or the rate hits the cap, the lender can cut the line or suspend draws. A HELOC held open as an emergency reserve is a reasonable plan, but it is not the same thing as cash in an account.
The variable rate is cheaper today because you are carrying the risk
The other way to pull equity out without touching your first mortgage is a fixed second — a home equity installment loan. One lump sum, one fixed rate, one fixed payment. I originated both of these at a bank, and the choice between them is nearly always about how you intend to spend the money.
| HELOC | Fixed second | |
|---|---|---|
| Rate today | 7.44% variable | 8.10% to 8.25% fixed |
| How you get the money | Draw as needed, reborrow | One lump sum at closing |
| Interest accrues on | Only what you have drawn | The full amount, from day one |
| Your risk | Rate moves; payment jumps at the end of the draw | None on rate. You pay for that in the coupon |
| Best for | Staged spending, renovations, an unknown total, a reserve | A known number, and a borrower who needs a fixed payment |
The HELOC is roughly seventy basis points cheaper right now. That gap is not a discount — it is the price of the option, and you are the one who sold it. If your budget cannot absorb the payment at the lifetime cap, the fixed second is not the expensive choice. It is the correct one.
Choosing between a line, a fixed second and a cash-out refinance is a different question, and it deserves its own math. I have written that comparison out in full: cash-out refinance vs. HELOC, including when disturbing a low first-mortgage rate is worth it and when it plainly is not. The blended-rate calculator will show you the true cost of keeping the first and adding a second.
The closing costs are a state-by-state story, and Florida is the outlier
Most HELOC advertising says “no closing costs.” Whether that is true depends almost entirely on which state your house is in, because two of the three I am licensed in tax the transaction and one does not.
Pennsylvania: usually no cost, with a string attached
Pennsylvania charges no mortgage recording tax, and realty transfer tax does not apply to a mortgage. The only unavoidable charge is the county recorder’s fee. That is why “no closing cost” HELOCs are the norm here: the lender advances the appraisal, credit report, flood certification and recording, and the numbers are small enough to absorb.
The string is a recoupment clause. Close the line within a set window, commonly thirty-six months, and you repay what the lender fronted. Some lenders charge a flat or capped amount, often in the $300 to $500 range; others bill the actual third-party costs, which is usually driven by the appraisal. Both structures are disclosed at application, because open-end credit rules require it. Read that page before you sign, and ask what the window is.
Florida: you are taxed on the whole line, not what you borrow
Florida charges two state taxes on a HELOC, and this is the single most expensive misunderstanding on this page.
Documentary stamp tax runs $0.35 per $100 of the obligation. The nonrecurring intangible tax adds 2 mills, or $2 per $1,000. And Florida statute is explicit that for a line of credit the intangible tax is assessed on the maximum amount of the line, with no further tax due on borrowings under it.
| Line amount | Doc stamps | Intangible tax | Total at closing |
|---|---|---|---|
| $100,000 | $350 | $200 | $550 |
| $250,000 | $875 | $500 | $1,375 |
That is $5.50 per $1,000 of line, or 0.55% of your credit limit, payable whether or not you ever draw a dollar. A Florida borrower who opens a $200,000 line intending to spend $30,000 has paid about $1,100 in state tax on money never borrowed.
So in Florida, the size of the line is a real decision, not a free option. Many Florida lenders advertise that they cover these taxes, and some genuinely do — but the money comes back somewhere, usually in the margin or in a longer recoupment window. Ask which, and ask for the number.
Texas: the state constitution writes the rules
Texas is its own country on home equity, and the rules are constitutional rather than regulatory. The detail is below, and it is the reason a lot of national lenders simply decline to offer a Texas homestead HELOC at all.
What Article XVI, Section 50 actually requires
If your homestead is in Texas, a HELOC is permitted — Section 50(t) exists specifically to authorize it — but it is bounded in ways no other state matches.
| Rule | What it means for you |
|---|---|
| 80% ceiling | All debt secured by the homestead, plus the new line, cannot exceed 80% of fair market value. Critically, it is the full committed line that counts, not your balance. On a $400,000 home with a $200,000 first, the largest line available is $120,000 even if you only plan to draw $20,000. |
| $4,000 minimum draw | No single advance may be less than $4,000. A Texas HELOC is not a checkbook for small expenses. |
| One equity loan at a time | A Section 50(a)(6) loan must be the only debt of its kind on the homestead. In practice you cannot hold a Texas home equity loan and a Texas HELOC on the same house simultaneously. |
| 12-day rule | Closing cannot occur before the twelfth day after you apply or receive the required constitutional notice, whichever is later. That notice must be its own separate document. |
| One per year | A new home equity extension cannot close within a year of the last one on the same homestead. This governs opening a line. It does not restrict draws on a line you already have. |
| 2% fee cap | Lender fees are capped at 2% of principal, excluding the appraisal, survey and title premium. |
| Non-recourse | Your personal liability is limited to the property, absent actual fraud. This protection is real, and it is unique. |
A rule you may have been told that is no longer true
For years, Texas barred further draws once the balance exceeded 50% of the home’s value. That provision was repealed effective 1 January 2018 — the constitutional text now reads simply “(6) (repealed).” A great deal of published guidance still states the 50% rule. Texas HELOCs run to the same 80% ceiling as any other home equity loan.
Section 50 governs your homestead. A Texas investment property or a non-homestead second home is not subject to the 80% cap, the minimum draw or the 12-day notice.
More on how the Texas rules land in practice: Texas cash-out refinance rules and how I work with Texas borrowers.
When the interest is deductible, and when it is not
The rule people remember from before 2018 — deduct home equity interest whatever you spent it on — has not applied for years. Interest on a HELOC is deductible only when the money is used to buy, build or substantially improve the home that secures the line, and only within the overall limits on acquisition debt: $750,000 for debt taken on after 15 December 2017, or $1,000,000 for older grandfathered debt.
Two things worth knowing. The phrase “the home that secures the line” is doing real work — a HELOC on your primary residence spent improving a rental does not qualify. And these rules, which were originally written to expire after 2025, were made permanent in July 2025. Guidance telling you they revert this year is out of date.
I am a mortgage broker, not a tax advisor, and this is general information rather than advice about your return. Your CPA should have the final word — and if you have one, I am glad to talk to them directly.
For a plain HELOC, start with your bank or credit union
On a straightforward line against a primary residence, a depository will usually beat what I can source, and I would rather you hear the reason than the slogan.
There is no agency market for HELOCs. Fannie and Freddie do not buy them, so there is no wholesale channel to shop the way there is for a first mortgage. A HELOC lives on the lender’s own balance sheet as a long-term asset, funded with deposits that cost the bank far less than it charges you. That spread is the business. A bank is the natural holder of this product in a way a broker structurally is not, and the credit unions are member-owned, so their margin comes back to you as rate.
I work with lenders, title companies and agents. I work for you. On a plain HELOC that usually means telling you to go somewhere I earn nothing.
What I can tell you is whether a line is the right instrument at all, and that is the part people get wrong on their own. Come to me when the file does not fit the simple box:
- You need a fixed second rather than a line, or you are not sure which.
- A cash-out first mortgage may actually be cheaper — worth checking before you disturb a low rate.
- Your income is self-employed, variable or newly established, and a retail underwriter reads the return wrong.
- The property is an investment or a second home, where bank HELOC menus thin out fast.
- It is a Texas homestead, where the constitutional rules disqualify most lenders.
- You are buying before you sell and the line is bridge financing — see how to own two homes at once.
- You are weighing it against a reverse mortgage or financing a renovation into the loan itself.
Talk to me first. It is free, and the answer is whatever fits you.
Tell me what you are trying to do with the money and what your first mortgage looks like. I will tell you whether a line, a fixed second or a cash-out is the right tool — and if the answer is a HELOC at your own credit union, I will tell you that too, and what to look for in the terms.
Talk it through
Text or email the situation: what the house is worth, what you owe, and what the money is for. One business day, no sales call.
Or get real numbers
Send me your scenario and I will price the options that I can price, with the trade-offs written out.
Request a Rate QuoteRates shown are national averages as of 5 August 2026 and are not an offer of credit. The Wall Street Journal Prime Rate is 6.75% as of December 2025. Your rate, margin, fees and available line depend on your credit, property, occupancy, combined loan-to-value and the lender’s program. State tax figures reflect Florida and Pennsylvania law as of August 2026 and Texas Constitution Article XVI, Section 50; they are general information, not legal or tax advice. Forest Hills Mortgage LLC, NMLS #1982611. Matt Mergo, NMLS #563819. Licensed in Florida, Pennsylvania and Texas. Equal Housing Opportunity. Questions.
Reviewed August 2026 · Matt Mergo, NMLS #563819