What a Home Equity Line of Credit Costs Over Its Life

What a home equity line of credit (HELOC) costs over its life depends on more than its interest rate, because the payment changes shape partway through: a first phase in which you can borrow and may pay only interest, then a second phase in which the balance must be repaid with principal. In the illustration below, a $50,000 balance at a constant 7.5% costs $312.50 a month for 10 years and then $402.80 a month for 20 years, for $84,171 in total interest.

Key takeaways

A HELOC is open-end credit secured by your home, so falling behind on it can cost you the home, not just your credit standing.
If the draw-period payment covers only interest, the balance is still $50,000 when repayment begins, and the payment in this example rises by about 29% at that point even if the rate never moves.
The rate is an index plus a margin and can change. A 2-point rise at the start of repayment would add about $63 a month and about $15,185 in total interest in this example.
Federal rules let a lender freeze or reduce the line under listed conditions, including a significant drop in the home's value.
Interest on a home-secured line is deductible only if you itemize and the money is used to buy, build or substantially improve the main or second home that secures it, and it is fully deductible only while your total mortgage debt stays within a federal limit that a 2025 law made permanent.

What a HELOC is and how it works

The Consumer Financial Protection Bureau (CFPB) describes a HELOC as an open-end line of credit that lets you borrow repeatedly against your home equity, meaning the home's value minus what you owe on the mortgage. Federal rules in Regulation Z apply to open-end credit plans secured by the consumer's dwelling and require the lender to give specific disclosures when it hands you an application.

The draw period

During the draw period, which the CFPB says could last 10 years, for example, you can generally borrow up to your credit limit at any time, typically with special checks or a card. Many plans set minimum monthly payments based on the current balance. Some require a minimum amount for each draw or a minimum balance kept outstanding. According to the CFPB's booklet What You Should Know About Home Equity Lines of Credit, some plans allow interest-only payments during the draw period, so nothing goes toward principal.

Regulation Z requires the lender to say so if paying only the minimum may not repay any principal, and to warn that a balloon payment may result. A balloon payment arises when the minimum payments have not paid the balance off by a set date, so the whole remaining balance must be repaid at once.

The repayment period

When the draw period ends, you can no longer borrow. The CFPB says lenders may set a schedule to repay the full balance, often over 10 or 20 years, that monthly payments are often significantly higher in this phase, and that in some cases the whole balance is due as soon as it begins. Your agreement states which applies. The booklet adds that if you sell the home, you are generally required to pay off the HELOC in full right away.

Rate: index plus margin

HELOCs usually carry a variable rate, according to the CFPB. Regulation Z requires the lender to disclose the index it uses, how the annual percentage rate (APR) is determined, such as by adding a margin to the index, and how often the rate can change. Where the starting rate is not set by the index and margin, it also requires a statement saying so and for how long that rate applies. The CFPB booklet notes that lenders sometimes offer a temporarily discounted introductory rate, for a period such as six months.

The index must be one the lender does not control and that is available to the general public. The CFPB booklet says different lenders use different indexes and names the US prime rate and the Constant Maturity Treasury (CMT) rate as common ones. The margin is the extra percentage the lender adds to the index.

Two limits appear in the rules. A dwelling-secured contract whose APR can rise must state the maximum interest rate that may be imposed during the term. Separately, a lender may provide in the initial agreement that it can stop further advances or reduce the credit limit during any period in which that maximum rate is reached. A cap therefore limits the rate, but if the agreement says so, the line itself can be curtailed while the cap is reached.

Some HELOCs let you convert part or all of the balance to a fixed rate. The CFPB says the fixed rate is usually higher than the variable rate but more predictable, and lists a conversion fee among the fees some lenders charge.

Worked example over 30 years

Illustrative example. The assumptions are round and chosen for arithmetic, not a forecast or an offer:

$50,000 drawn in full in month 1, with no further draws and no fees.
Draw period of 10 years (120 months) with interest-only payments, then a repayment period of 20 years (240 months) with fully amortizing payments, meaning each payment covers that month's interest plus some principal.
Rate = prime + 0.5-point margin. The bank prime loan rate was 7.00% on October 21, 2026 (the latest observation in the Federal Reserve series published by FRED when this article was checked), so the rate is 7.5%. The margin is assumed. A real plan names its own index and margin.

Interest-only payment = balance × annual rate ÷ 12
Amortizing payment = P × i ÷ (1 − (1 + i)^−n)
  P = balance at start of repayment ($50,000)
  i = annual rate ÷ 12
  n = number of monthly payments (240)

With the rate held at 7.5%, the interest-only payment is $50,000 × 0.075 ÷ 12 = $312.50. At the start of month 121 the balance is still $50,000, because none of those payments reduced principal. The amortizing payment on $50,000 over 240 months at 7.5% is $402.80, which is $90.30 (about 29%) more.

The second case adds a 2-point rate shock at the start of repayment. The rate becomes 9.5% (prime plus 0.5 plus 2) and stays there. The payment becomes $466.07, which is $153.57 (about 49%) above the interest-only payment.

Item	Rate stays 7.5%	Rate rises to 9.5% at repayment
Monthly payment, months 1–120	$312.50	$312.50
Monthly payment, months 121–360	$402.80	$466.07
Interest paid in draw period	$37,500.00	$37,500.00
Interest paid in repayment period	$46,671.18	$61,855.74
Total interest over 30 years	$84,171.18	$99,355.74
Total of all payments	$134,171.18	$149,355.74

Totals use the unrounded formula payment; a lender's cent-by-cent schedule would differ by a dollar or two.

Three conclusions follow from the numbers. First, even with no rate change, 45% of the interest ($37,500 of $84,171) is paid in the decade in which the balance does not fall at all. Second, the interest-only decade adds cost on its own: the same $50,000 at 7.5%, repaid in equal payments of $349.61 over 30 years from the first month, would cost $75,859 in interest, about $8,313 less. Third, the rate shock adds $15,184.56 in total interest, all of it in the repayment period, because the example raises the rate only from month 121; a rise during the draw period would also raise the interest-only payment. The example leaves out fees, rate moves during the draw period and any extra principal paid early. To test other balances, rates and terms, use the loan calculator.

Costs and risks beyond the rate

Fees

The CFPB lists fees that lenders might charge under some plans: an application fee; origination, appraisal, title or other closing costs; an inactivity fee for not using the line; an annual or membership fee; a cancellation fee for ending the line early, usually within the first two or three years; and a conversion fee for moving part of the balance to a fixed rate. Regulation Z requires the lender to itemize fees it charges to open, use or maintain the plan, with when each is payable, and to give a good-faith estimate of third-party fees.

Regulation Z also bars nonrefundable fees until three business days after you receive the disclosures and brochure, and requires a refund of all application fees if a disclosed term (other than an index-driven change) changes before the plan opens and you decline.

When a lender can freeze or reduce the line

The CFPB notes that if the home's value falls significantly, the lender might not allow more borrowing, and it may also freeze your ability to take out more funds if your financial circumstances change. Regulation Z lets a creditor prohibit further advances or reduce the limit during any period in which one of these conditions exists:

the dwelling's value declines significantly below the appraised value used for the plan;
the creditor reasonably believes a material change in your finances will keep you from meeting repayment obligations;
you are in default of a material obligation under the agreement;
government action prevents the lender from imposing the agreed APR;
government action harms the priority of the lender's security interest so that it is worth less than 120% of the credit line; or
the lender's regulator notifies it that continued advances are an unsafe and unsound practice.

A lender may also freeze the line while the maximum rate is reached, if the initial agreement provides for it. A freeze affects new borrowing, not the balance already drawn, which remains due on the agreed terms.

The home is the collateral

The lender takes a security interest in the dwelling, and Regulation Z requires a disclosure that loss of the dwelling may occur in the event of default. The CFPB's advice is to consider a HELOC only if you are confident you can keep up with the payments, because falling behind can mean losing the home.

Tax treatment of the interest

IRS Publication 936, the edition for 2025 returns, states that interest on home equity loans and lines of credit is deductible only if the borrowed funds are used to buy, build or substantially improve the taxpayer's home that secures the loan. A substantial improvement adds to the home's value, prolongs its useful life or adapts it to new uses; repairs that only maintain it, such as repainting, do not count.

Use of the money is not the only condition. Under Publication 936, you must itemize deductions on Schedule A, the home must be a qualified home (your main home or a second home), and for debt taken out after December 15, 2017, interest is fully deductible only while your total mortgage debt used to buy, build or improve your main and second home stays at $750,000 or less ($375,000 if married filing separately).

These limits in 26 U.S.C. 163(h)(3)(F) originally applied only to tax years 2018 through 2025. Public Law 119-21 (section 70108), enacted in 2025, removed the end date for tax years beginning after December 31, 2025, so the home-equity rule and the $750,000 limit now continue with no expiry. Regulation Z separately requires lenders to tell applicants to consult a tax advisor about deductibility.

Comparing three ways to borrow

The CFPB compares home equity loans and HELOCs and, on a separate page, lists cash-out refinancing as an alternative.

Feature	HELOC	Home equity loan	Cash-out refinance
How you receive money	Draw repeatedly up to a maximum; payments replenish available credit	Lump sum	Difference between the new and old mortgage, in cash
Typical rate type	Usually adjustable	May be fixed or adjustable	Variable or fixed, per the CFPB booklet
Relation to your first mortgage	Second mortgage, paid in addition to the first	Second mortgage, paid in addition to the first	Replaces the existing mortgage with a bigger one
Repayment	Draw period, then repayment period	Regular monthly payments after borrowing the full amount up front	Payments on the new, larger mortgage
Closing costs	Fees vary by plan (see above)	Not covered by the CFPB pages cited	Often; the CFPB booklet says generally higher

The CFPB adds that, depending on the terms, a cash-out refinance may be more or less expensive than a HELOC, and that the interest rate deserves a close look if it is higher than the rate on your current mortgage.

Frequently asked questions

Can a lender change my rate whenever it wants?

No. Regulation Z bars a creditor from changing the APR on a home equity plan unless the change is based on an index outside the creditor's control that is available to the general public. The plan must also disclose how often the rate can change and any limits on the changes.

Can the lender demand the full balance early?

Only in listed cases. Regulation Z allows a lender to terminate the plan and demand repayment of the full balance before the original term if there is fraud or material misrepresentation, you fail to meet the repayment terms for the outstanding balance, or an action or inaction by you adversely affects the lender's security. A narrow further exception covers credit that federal law on loans to a depository institution's executive officers requires to be payable on demand, if the initial agreement includes that provision.

What disclosures come before I apply?

Regulation Z requires the lender to give the plan's disclosures and the CFPB brochure "What You Should Know About Home Equity Lines of Credit" when it provides an application. If you apply by phone, through a broker or on a form in a magazine or other publication, they may instead be delivered or mailed within three business days after the application is received. The disclosures include the payment terms, fees, a $10,000 payment example based on a recent APR, and, for variable-rate plans, a 15-year historical example showing how rates and payments would have changed.

Is there a minimum amount to borrow?

Some plans do. The CFPB says some require a minimum for each draw, such as $300, a minimum outstanding balance, or an initial amount taken when the line is opened. Regulation Z requires these limits to be disclosed as dollar amounts or percentages.

Can the lender swap the index it uses?

Only in narrow cases. Regulation Z allows a replacement index and margin if the original index is no longer available, the replacement has substantially similar historical fluctuations, and the new index and margin would have produced an APR substantially similar to the rate in effect when the original became unavailable. A change that the consumer agrees to in writing is also allowed.

Questions to settle before you sign

Does the minimum payment in the draw period cover only interest, and what is the first payment after the draw period ends? Use the disclosed $10,000 example to scale it to your balance.
Which index sets the rate, what is the margin, how often can the rate change, and what is the maximum rate in the contract?
Which fees apply on opening, each year, for inactivity, for early cancellation and for converting to a fixed rate?
Under which conditions may the lender freeze or lower the limit, and is the full balance due when the draw period ends?
Will the money go to buying, building or substantially improving the home that secures the line? That use, along with itemizing and the $750,000 overall limit, decides whether, and how much of, the interest can be deducted, so ask a tax professional about your own case.