HELOC vs. cash-out refi
A HELOC keeps your low-rate first mortgage intact — useful when your existing rate is 3–4% and current rates are 7%+. Cash-out refi resets everything to today's rate. If you'd give up a 3% rate to get cash, the HELOC almost always wins on lifetime interest.
Why payment shock blindsides borrowers
During the 10-year draw, you pay interest only. The day repayment starts, the lender amortizes the balance over 10–20 years — payments often double or triple. Borrowers who used the HELOC for an addition or college tuition get surprised; budget for the repayment payment from day one.
The variable-rate trap
HELOCs reprice monthly with Prime. A 2% Prime jump on a $100K balance adds $167/mo in interest-only. If you can't tolerate that volatility, fix it — some lenders let you convert portions of a HELOC to a fixed-rate term loan.
FAQ
Is HELOC interest tax-deductible?
Only when proceeds are used to 'buy, build, or substantially improve' the home securing the loan, per the 2017 Tax Cuts and Jobs Act. Using HELOC funds for college or debt consolidation is not deductible.
What credit score do I need?
Most lenders require 680+ for standard HELOCs and 700+ for the best rates. Below 680, expect a 1–2% rate premium or denial.
Can the lender freeze my HELOC?
Yes — if your home value drops materially or your credit deteriorates, the lender can reduce your line or freeze new draws. Read the agreement; this happened to millions in 2008–2009.
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Last reviewed
June 2026. We re-check every figure on the platform on a rolling quarterly cycle.
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