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Should I Get a HELOC?

Maryam Jinadu | May 9, 2025
Finance

Weighing the Pros and Cons of a HELOC

A home equity line of credit (HELOC) can be a smart way to borrow money, especially if you’ve built up equity in your home. However, just because you can get a HELOC doesn’t always mean you should. Like any financial product, it comes with advantages and risks. If you’re considering tapping into your home’s value, this guide will help you understand the major pros and cons of a HELOC to help you decide whether it’s the right option for your financial goals.

What is a HELOC?

A HELOC is a revolving line of credit secured by your home. It allows you to borrow against your home’s equity, typically up to 85% of your home’s appraised value minus what you owe on your mortgage.

Unlike a traditional loan, a HELOC works more like a credit card. You’re approved for a maximum limit, and you can borrow from that amount as needed over a set draw period, usually five to ten years. During that time, you often only pay interest on the amount you’ve drawn. After the draw period ends, you’ll enter the repayment phase, which could last ten to 20 years. Your home serves as collateral. That’s a big responsibility, one we’ll touch on more when we get into the cons.

Pros and Cons of a HELOC

Before you apply for a HELOC, it’s important to understand both the benefits and the potential drawbacks. Let’s break down the main advantages and disadvantages to help you decide whether a HELOC is right for you.

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Pros of a HELOC

  • Flexible access to funds. One of the biggest benefits of a HELOC is its flexibility. You don’t receive a lump sum. Instead, you borrow what you need when you need it. This can be ideal for long-term projects like home renovations or covering fluctuating expenses such as college tuition.
  • Lower interest rates than credit cards. Because a HELOC is secured by your home, interest rates tend to be lower than unsecured credit options like credit cards or personal loans. As of early 2024, HELOC rates typically range between 7% and 9%, though your credit score and lender can influence your rate.
  • Interest-only payments during the draw period. During the draw period, many HELOCs allow you to make interest-only payments, which can be easier on your budget in the short term. This can help you manage cash flow more effectively if you’re dealing with inconsistent income or large, ongoing expenses.
  • Potential tax benefits. If you use your HELOC funds for qualified home improvements, the interest may be tax-deductible. Be sure to consult a tax professional to understand your specific eligibility.
  • Reusable credit. Since a HELOC is a revolving line of credit, you can borrow, repay and borrow again throughout the draw period. That makes it a versatile tool if you anticipate needing access to funds more than once.

Cons of a HELOC

  • Your home is at risk. Because your home is the collateral, failure to repay your HELOC could lead to foreclosure. This makes it a risky option for borrowers who may struggle to make consistent payments.
  • Variable interest rates. Most HELOCs come with variable rates, which means your interest rate (and monthly payment) can go up over time, especially in a rising rate environment. Some lenders offer fixed-rate options, but these may come with higher upfront costs or limited terms.
  • Temptation to overspend. With easy access to credit, it’s possible to borrow more than you need, especially if you view it as a safety net. This can lead to long-term debt if you're not disciplined about repayment.
  • Repayment shock. Once the draw period ends, you’ll enter the repayment phase. This often includes both principal and interest payments, which can cause your monthly bill to jump significantly. If you’ve only been paying interest up to this point, this increase could be challenging to manage.
  • Fees and closing costs. While some lenders offer no-closing-cost HELOCs, others charge fees for application, appraisal and even annual maintenance.

When Does a HELOC Make Sense?

A HELOC can be a smart financial tool in certain scenarios. Here are a few examples of when it may be the right choice:

  • Home renovations. If you plan to upgrade your kitchen, add a bathroom or build an addition, a HELOC can provide the funds you need over time.
  • Education expenses. When tuition and school costs come in waves, the flexibility of a HELOC can help cover gaps without resorting to high-interest loans.
  • Emergency cushion. If you do not already have an emergency fund, a HELOC can act as a backup plan. However, be cautious about relying on borrowed money as a primary safety net.
  • Debt consolidation. You can use a HELOC to pay off higher-interest debt like credit cards. Be sure you’re not trading unsecured debt for secured debt without a clear repayment plan.

Final Thoughts

A HELOC can be a powerful financial tool but it’s not for everyone. If you have strong credit, reliable income, and a clear plan for how you’ll use and repay the funds, it can offer lower interest rates and greater flexibility than many alternatives. However, if you’re unsure about your ability to repay or if you’re prone to overspending, the risks may outweigh the rewards. When used wisely, a HELOC can help you make the most of your home’s equity without putting your financial stability at risk.

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