How to Take Advantage of Your Home Equity: Using a HELOC Strategically
- Steven C. Balch, CFP®
- Jan 28
- 6 min read
Over the last several years, home values have risen significantly across much of the country. As a result, many homeowners are sitting on far more equity than they were just a few years ago.
That equity isn’t just a number on a statement. When used intentionally, it can provide flexibility, liquidity, and optionality in your broader financial plan.
One of the most common ways homeowners access that equity is through a Home Equity Line of Credit, often called a HELOC.
This article explains what a HELOC is, how it works, and how homeowners use HELOCs strategically.
What Is a HELOC?
A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by the equity in your home.
Instead of receiving a lump sum like a traditional loan, a HELOC works more like a credit card:
You’re approved for a maximum credit limit
You can borrow as much or as little as you need
You only pay interest on the amount you actually use
Because your home serves as collateral, HELOC interest rates are typically lower than personal loans or credit cards, though higher than a primary mortgage.
How Does a HELOC Work?
Most HELOCs have two distinct phases.
The Draw Period (Usually 10 Years)
This is where the flexibility exists.
During the draw period, you can access funds at any time, up to your approved limit. Payments are typically interest-only on the amount borrowed. If you don’t use the line at all, your payment may be $0.
Many homeowners open a HELOC during this phase simply to have access to it, even if they never draw on it.
The Repayment Period
Once the draw period ends, any outstanding balance converts into a repayment loan.
Payments now include both principal and interest, and the balance is amortized over a fixed period, often 10 to 20 years. At this point, the HELOC behaves more like a traditional loan.
How Much Can You Borrow With a HELOC?
Your borrowing capacity depends on:
Your home’s current market value
Your existing mortgage balance
Your credit profile and income
Most lenders allow total borrowing of 75% to 85% of your home’s value, including your primary mortgage.
Example:
Home value: $800,000
Existing mortgage: $400,000
Maximum combined loan-to-value (80%): $640,000
Potential HELOC availability: $240,000
HELOC Interest Rates and Costs
HELOC rates are usually variable and tied to a benchmark like the Prime Rate.
Costs vary by lender and state:
Many HELOCs have no upfront cost
Some charge small annual or inactivity fees
You generally only pay interest if you borrow
Because rates are variable, HELOCs are best used for short- to medium-term needs, emergency access, or strategic flexibility, not ongoing lifestyle spending.
Why Homeowners Use HELOCs Strategically
Liquidity Without Selling Investments
A HELOC provides access to cash without forcing you to sell investments, realize capital gains, or disrupt a long-term portfolio strategy.
This can be especially valuable during market volatility, when selling investments may lock in losses or create unnecessary tax consequences.
Buying a Home or Managing a Transition
Some homeowners use HELOCs to fund a down payment, bridge timing gaps between buying and selling, or strengthen offers in competitive real estate markets.
Renovations and Home Improvements
HELOCs are commonly used to fund renovations or repairs over time.
Instead of taking a lump-sum loan or draining savings, homeowners can draw funds as projects progress and only pay interest on what’s actually used.
Emergency and Disaster Preparedness
After events like storms, flooding, or fires, repairs often need to happen quickly. Insurance reimbursements can take time.
A HELOC allows homeowners to make repairs immediately, stabilize the home, and avoid high-interest emergency debt. The key is opening the line before an emergency happens.
College Planning Flexibility
Some families use HELOCs as part of a broader college funding strategy to reduce reliance on private student loans or manage multi-year education costs.
This approach isn’t right for everyone, but in the right situation, it can add flexibility and control.
A HELOC as a Planning Tool, Not a Spending Plan
A HELOC is still debt secured by your home, so it shouldn’t be viewed as money to spend freely. The real value of a HELOC isn’t about borrowing more, but about having options.
Many homeowners open a HELOC with no intention of using it immediately. They open it for access, not action. Knowing the line is available can remove pressure and prevent rushed decisions when life throws something unexpected your way.
Much like an emergency fund, a HELOC is often most valuable when it sits unused. It gives you flexibility without forcing you to sell investments, tap retirement accounts, or rely on high-interest debt at the wrong time.
When used intentionally as part of a broader financial plan, a HELOC can:
Increase liquidity without disrupting long-term investments
Provide a reliable backup source of cash
Reduce financial stress during life transitions
Support thoughtful tax and investment strategies
Used this way, a HELOC turns home equity from a static number on paper into a practical planning resource without becoming a spending habit.
- Steve Balch, CFP®
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Frequently Asked Questions About HELOCs
What is a HELOC and how does it work?
A HELOC (Home Equity Line of Credit) is a revolving line of credit secured by the equity in your home. You’re approved for a maximum limit, can borrow as needed during the draw period (often 10 years), and only pay interest on the amount you use. After the draw period ends, the balance converts to a repayment loan with principal and interest payments.
Is opening a HELOC a good idea if I don’t plan to use it right away?
For many homeowners, yes. Opening a HELOC provides access to liquidity and flexibility without requiring you to borrow immediately. Many lines have no cost if unused, making them valuable as a financial backstop like an emergency fund, but larger and more flexible.
Does opening a HELOC put my home at risk?
A HELOC is secured by your home, so failure to repay could put the home at risk. That’s why HELOCs should be used strategically and conservatively. When used as a planning tool rather than ongoing spending, the risk can be managed responsibly.
How much can I borrow with a HELOC?
Most lenders allow total borrowing of 75%–85% of your home’s value, including your existing mortgage. The exact amount depends on your home value, current mortgage balance, income, and credit profile.
Are HELOC interest rates fixed or variable?
Most HELOCs have variable interest rates tied to a benchmark like the Prime Rate. This means payments can change over time. Some lenders allow you to convert balances to a fixed rate once drawn, but this varies by bank.
Is interest on a HELOC tax deductible?
HELOC interest may be tax deductible only if the funds are used to buy, build, or substantially improve the home securing the loan. Using HELOC funds for other purposes generally does not qualify. Tax rules can change, so it’s important to confirm with a tax professional.
How does a HELOC compare to a cash-out refinance?
A HELOC preserves your existing mortgage rate and provides flexible access to funds as needed. A cash-out refinance replaces your mortgage with a new, larger loan and typically locks in a fixed payment. HELOCs offer more flexibility, while refinances provide more certainty.
Can a HELOC hurt my credit score?
Opening a HELOC may cause a small, temporary credit impact due to the inquiry and new account. Over time, having available unused credit can actually improve your credit utilization ratio, depending on how it’s managed.
Should I use a HELOC instead of selling investments?
In some cases, yes. A HELOC can provide liquidity without forcing you to sell investments during market downturns or trigger capital gains taxes. This strategy should be evaluated carefully as part of an overall financial plan.
Is a HELOC a good idea in retirement?
It depends. Some retirees use HELOCs as emergency liquidity or as part of a withdrawal strategy. Others prefer to eliminate all debt. The decision should factor in income stability, risk tolerance, and long-term cash flow needs.
What’s the biggest mistake people make with HELOCs?
Using them as a long-term spending tool rather than a strategic planning resource. HELOCs work best when used intentionally for flexibility, emergencies, or temporary needs, not to support ongoing lifestyle expenses.
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