By: Tomo Mortgage Staff,
Reviewed by: Aaron Shaw, Senior Loan Advisor | NMLS #182019
November 3, 2026
Key takeaways
- A HELOC (home equity line of credit) lets you borrow against your home’s equity, up to an approved limit. During the draw period, you can generally borrow, repay and borrow again.
- How much you can borrow depends on your home’s value, existing debt, creditworthiness, and the lender’s requirements.
- Some HELOCs let you draw money as needed. Others, including Tomo Mortgage’s, require a substantial upfront withdrawal, so interest starts on that amount even if you haven’t spent it.
- Your payments may be interest-only at first, then increase when you begin repaying principal. Your home secures the loan, so missed payments could lead to foreclosure.
What is a HELOC?
A home equity line of credit (HELOC) lets you borrow money using the equity you’ve built in your home. Equity is the difference between what your home is worth and what you owe on it. If your home is worth $500,000 and you owe $300,000, you have $200,000 in equity.
If you already have a mortgage, a HELOC is usually a separate loan alongside it. Your original mortgage rate and payment stay the same, but you’ll have an additional HELOC payment. You can also get a HELOC on a home you own outright.
Unlike a standard lump-sum loan, a HELOC gives you an approved credit limit you can draw from during a set period. As you repay what you’ve borrowed, you can generally access that credit again until the draw period ends.
If you’d rather borrow a fixed amount all at once, a home equity loan may be worth considering. Our guide to HELOCs vs. home equity loans explains the differences.
How much can you borrow with a HELOC?
You generally can’t borrow against all your equity. Lenders use your combined loan-to-value ratio (CLTV), which compares your existing mortgage debt plus your proposed HELOC limit with your home’s value.
For example, if your home is worth $600,000 and a lender allows up to 90% CLTV, your combined borrowing limit would be $540,000. Subtract a $350,000 mortgage balance, and your maximum potential HELOC limit is $190,000.
Tomo Mortgage allows up to 90% CLTV, but your actual limit may be lower depending on your credit, property type, occupancy and other requirements.
How do you receive money from a HELOC?
There are two approaches. The difference matters because you pay interest on money you’ve borrowed, not the amount you’re approved to borrow.
Draw as you go
A traditional HELOC works somewhat like a credit card secured by your home. You withdraw money when you need it, often through an online transfer, check or card.
For example, if you have a $100,000 limit but draw just $20,000 for a renovation, you generally pay interest only on the $20,000 balance. You can usually borrow again as you repay, though some lenders have minimum withdrawal amounts or fees.
Draw upfront
Some HELOCs require you to take a portion of your limit upfront. With Tomo Mortgage’s HELOCs, 75%-100% of the approved line is disbursed initially, after the applicable waiting period following closing, depending on which HELOC product is right for you.
On a $100,000 line, that means an initial $75,000 or $100,000 withdrawal. Interest starts accruing on that withdrawal amount when it’s funded, even if you haven’t spent it. You can draw the remainder during the draw period and generally borrow again as you pay down the balance, subject to your agreement.
Which approach is better?
Drawing as you go can suit expenses that arrive in stages, such as a renovation. An upfront draw may suit a large cost you already know, like a contractor’s bill. The right fit depends on when you need the money and how much interest you’re comfortable paying from the start.
What do you pay during the draw period?
The draw period is when you can access your HELOC funds. Its length depends on your lender and loan agreement.
Some HELOCs require only interest payments during this time. That keeps the required monthly payment lower but doesn’t reduce what you owe. If you borrow $50,000 and make only interest payments, you’ll still owe $50,000 when the draw period ends, assuming you don’t borrow more or repay principal.
Others require principal and interest payments from the beginning. Tomo Mortgage’s HELOC offers interest-only and fully amortizing options, depending on the term you choose, and you may make additional payments toward your balance.
As a quick estimate, multiply your HELOC balance by its annual interest rate and divide by 12. At a hypothetical 8% rate, an interest-only payment on $50,000 would be about $333 per month. Your actual payment may differ because of daily interest calculations and rate changes.
What happens when the draw period ends?
Once the draw period ends, you generally can’t borrow more money. You enter the repayment period and start paying down the amount you borrowed (principal) as well as interest. That can mean a noticeable jump in your monthly payment.
Here’s an example at an unchanged 8% interest rate, assuming interest-only payments during the draw period followed by repayment over 15 years:
| HELOC balance | During draw period | During repayment |
| $50,000 | $333/month | $478/month |
| $100,000 | $667/month | $956/month |
Illustrative estimates, not Tomo Mortgage rates or repayment terms. Assumes no additional borrowing, an unchanged balance until repayment begins, and a fixed 8% rate for calculation purposes. Actual variable rates, billing methods and payments may differ.
For a $100,000 balance, that’s an increase of roughly $289 a month even without a rate increase. If your rate rises or you have less time to repay, the payment could be higher.
Some HELOCs require the remaining balance all at once, known as a balloon payment. Check your lender’s disclosures to understand what your payment could become before borrowing. The CFPB explains the transition in more detail.
Are HELOC interest rates fixed or variable?
Most HELOCs have variable rates, meaning they can rise or fall. Lenders typically use a public benchmark rate (an index) plus an additional percentage (a margin).
Tomo Mortgage offers fixed and variable rate HELOCs. Variable rates use the Wall Street Journal Prime Rate plus a margin based on your credit profile and aren’t available in every state. If Prime rises, a variable rate and payment may rise too. Tomo Mortgage also offers fixed-rate options for more predictable payments, sometimes at a higher cost.
Federal rules limit when lenders can change your terms. They can freeze or reduce your line only in specific situations, such as a significant drop in home value, and can demand early repayment only in cases like fraud or default. Review your agreement and the CFPB’s HELOC protections.
What fees do you pay for a HELOC?
Fees vary by lender. You might pay closing or appraisal costs, annual fees, transaction fees or charges for closing your line early. Not every HELOC has all of these.
A HELOC’s annual percentage rate (APR) generally reflects interest alone, unlike a traditional mortgage APR, which includes certain financing costs. As the FTC explains, compare fees separately. Also check whether the lender requires an upfront withdrawal, since borrowing more than you need can increase interest costs.
How to get a HELOC
Getting a HELOC is similar to applying for a mortgage, although requirements vary by lender:
- Check your equity. Estimate your home’s value and subtract what you owe on any loans secured by it. This gives you a starting point for how much you might borrow.
- Compare offers. Look at rates, fees, limits, required upfront draws and how payments change once borrowing ends.
- Apply. Your lender reviews your income, credit, existing debts and property. You may need pay stubs, tax returns or other documents.
- Confirm your home’s value. Tomo Mortgage uses automated property valuations for eligible lines up to $500,000 and requires a full appraisal for larger lines.
- Review your terms and close. Read the disclosures covering payments, rates and fees before signing. For a HELOC secured by your primary home, federal law generally gives you three business days to cancel after the latest of account opening or receipt of required disclosures and cancellation notice. Funding follows the applicable waiting period, which may be longer in some states.
Before proceeding, make sure you can handle both the initial payment and the potentially higher repayment-period payment. Our guide to whether a HELOC is a good idea can help you weigh the tradeoffs.
Not available in all states. Tomo Mortgage, LLC · NMLS #2059741 · Equal Housing Lender · Licenses and disclosures
Frequently asked questions
Do you have to use the full amount of a HELOC?
Not always. Some HELOCs let you withdraw only what you need. Others require an initial draw; Tomo Mortgage requires 75% or 100% drawn upfront depending on the HELOC product. You pay interest on the funded balance, even if you haven’t spent it.
Can you pay off a HELOC early?
Generally, yes. You can usually pay extra toward principal or pay off your balance entirely, though some lenders charge early closure fees. During the draw period, repaid funds generally become available to borrow again.
What happens to your HELOC if you sell your house?
You generally pay off the outstanding HELOC balance when you sell, often using sale proceeds. If those proceeds won’t cover your mortgage, HELOC and selling costs, you may need additional funds.
Can you get a HELOC on a paid-off house?
Yes. You don’t need an existing mortgage to qualify. If you own your home outright, you may be able to borrow against its equity, subject to the lender’s eligibility requirements. Your home still secures the HELOC.
Is HELOC interest tax-deductible?
It may be if you itemize and use the money to buy, build or substantially improve the home securing the line, subject to applicable debt limits and other rules. Interest on personal spending, such as paying off credit cards, generally isn’t deductible under these rules. See IRS Publication 936 or ask a tax advisor.