HELOC Guide 2026: Rates, Requirements & How It Works
A Home Equity Line of Credit (HELOC) lets you borrow against your home's equity as needed. Current avg rate: 8.25%. Borrow up to 85% of your equity. Draw period: 10 years. Here's everything you need to know.
Current HELOC Rates: February 2026
| Credit Score | HELOC Rate | Home Equity Loan Rate | Cash-Out Refi Rate |
|---|---|---|---|
| 760+ | 7.50% | 7.25% | 6.10% |
| 740-759 | 7.75% | 7.50% | 6.20% |
| 720-739 | 8.25% | 7.75% | 6.35% |
| 700-719 | 8.75% | 8.25% | 6.50% |
| 680-699 | 9.25% | 8.75% | 6.75% |
| 660-679 | 9.75% | 9.25% | 7.00% |
HELOC rates are variable (Prime + margin). Prime rate: 7.50% (Feb 2026). Home equity loan rates are fixed. Cash-out refi replaces your first mortgage.
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How a HELOC Works: The Complete Breakdown
Phase 1: Draw Period (Years 1-10)
During the draw period, your HELOC works like a credit card secured by your home. You can borrow, repay, and borrow again up to your credit limit. Most HELOCs require interest-only payments during this phase.
Phase 2: Repayment Period (Years 11-30)
After the draw period ends, you can no longer borrow. The outstanding balance converts to a fully amortizing loan (principal + interest) over 15-20 years. Payments can increase significantly.
HELOC Requirements 2026
Minimum Requirements
How Much Can You Borrow?
Formula: (Home Value × 85%) - Mortgage Balance = Max HELOC
Example:
Home value: $450,000
× 85% = $382,500
- Mortgage balance: $280,000
= $102,500 max HELOC
HELOC vs. Home Equity Loan vs. Cash-Out Refinance
| Feature | HELOC | Home Equity Loan | Cash-Out Refi |
|---|---|---|---|
| Rate type | Variable | Fixed | Fixed |
| Current rate | 8.25% avg | 7.75% avg | 6.35% avg |
| Closing costs | $0-$500 | $2K-$5K | $4K-$12K |
| Access to funds | Revolving (use as needed) | Lump sum | Lump sum |
| Keeps 1st mortgage? | Yes | Yes | No (replaces it) |
| Best for | Ongoing expenses, renovations | One-time large expense | Large amount + rate improvement |
| Tax deductible? | Yes (if used for home improvement) | Yes (if used for home improvement) | Yes (mortgage interest) |
Decision guide: If your first mortgage rate is below 5.50%, use a HELOC or home equity loan to keep that great rate. If your first mortgage rate is above 6.35%, a cash-out refi lets you lower your rate AND access equity in one move.
Best & Worst Uses for a HELOC
Smart HELOC Uses
- Home renovations (70-95% ROI): Kitchen, bath, siding — adds value AND is tax-deductible
- Emergency fund backup: Open a HELOC now, use only if needed. $0 cost until you draw
- Debt consolidation: Replace 22% credit card debt with 8.25% HELOC (save $500+/mo)
- Investment property down payment: Use equity to buy a rental that cash-flows
- Bridge financing: Buy new home before selling old one
Bad HELOC Uses
- Vacations or luxury items: Don't put your home at risk for depreciating purchases
- Day trading or crypto: Speculative investments with secured debt = recipe for disaster
- Covering living expenses: If you can't afford basics, a HELOC delays the problem
- Paying off debt you'll run up again: Fix the spending habit first
- Maxing out your equity: Keep 15-20% equity buffer for emergencies
3 Real HELOC Scenarios
Scenario 1: $50K Kitchen Remodel
Scenario 2: $35K Debt Consolidation
Scenario 3: $75K Investment Property Down Payment
Best HELOC Lenders 2026
| Lender | Rate (APR) | Max LTV | Min Draw | Closing Costs | Best For |
|---|---|---|---|---|---|
| Figure | 7.10-14.74% | 95% | $15K | $0-$299 | Speed (5-day close) |
| Bethpage FCU | 7.49%+ | 80% | $10K | $0 | Low rates |
| US Bank | 7.65-11.50% | 85% | $15K | $0 | Large banks |
| BMO Harris | 7.75-12.00% | 80% | $10K | $0 | No annual fee |
| Third Federal | 7.49-8.99% | 80% | $10K | $0 | Fixed-rate option |
HELOC Rate Forecast 2026-2027
Now (Feb 2026)
8.25%
Prime 7.50% + 0.75%
H2 2026 (Projected)
7.50-7.75%
2-3 Fed cuts expected
2027 (Projected)
6.75-7.25%
Prime drops to 6.25-6.75%
Key insight: HELOC rates are directly tied to the Prime rate, which follows the Fed funds rate. Every 0.25% Fed cut = 0.25% lower HELOC rate. With 3-5 more cuts expected through 2027, HELOC rates should drop 0.75-1.25%. If you open a HELOC now, your rate automatically decreases as the Fed cuts.
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Related Resources
Editorial Note: HELOC rates from Bankrate and lender surveys. Prime rate from Federal Reserve. Equity data from Cotality (CoreLogic). Updated Feb 13, 2026. Editorial standards.