A HELOC — home equity line of credit — works less like a loan and more like a credit card secured by your home. You're approved for a limit, you draw only what you need, and you pay interest only on what you've drawn. Your first mortgage stays exactly where it is.
How a HELOC actually works
A HELOC has two phases. During the draw period (often around 10 years) you can borrow, repay, and borrow again up to your limit, much like a revolving credit line. After that comes the repayment period, when the balance you still owe is paid down over time. Most HELOCs carry a variable rate, which means your payment can rise or fall as rates move — an important difference from a fixed home equity loan.
Because it's a second lien that sits on top of your existing mortgage, a HELOC lets you tap equity without refinancing your first mortgage. For homeowners who locked in a low rate a few years ago, that's often the whole appeal.
Texas rules still apply
A HELOC on your Texas homestead is a home equity product, so it lives under the same Section 50 protections as a cash-out refinance:
- Your line plus all other liens can't exceed 80% of the home's value.
- The 12-day waiting period before closing applies.
- The one-home-equity-loan-at-a-time rule applies — you generally can't stack a HELOC on top of another active home equity loan.
- The 3-business-day right of rescission after closing applies.
Home worth $500,000, mortgage balance $300,000. Eighty percent of the value is $400,000, so the most you could access across all liens is about $100,000. That $100,000 becomes the ceiling for your HELOC line, subject to credit, income, and lender requirements. Try your own figures in the equity calculator.
HELOC vs. cash-out refinance vs. home equity loan
All three are capped at 80% in Texas. The right one depends on your first-mortgage rate and how you want to borrow:
| HELOC | Cash-out refinance | Home equity loan | |
|---|---|---|---|
| Structure | Second lien, revolving | Replaces first mortgage | Second lien, lump sum |
| Rate | Usually variable | New first-mortgage rate | Usually fixed |
| Payout | Draw as needed | Lump sum | Lump sum |
| Your first mortgage | Untouched | Replaced | Untouched |
| Best when | You want flexibility over time | Your current rate is high | You want a fixed amount at a fixed rate |
When a HELOC is the right tool
A HELOC tends to shine when your needs are ongoing or uncertain: a multi-stage renovation, tuition paid semester by semester, or simply a standing cushion you'd like available but may not fully use. Because you pay interest only on what you draw, it can be an efficient way to keep borrowing costs down when you don't need all the money at once. If you instead need a single known amount with a predictable payment, a home equity loan is often the better fit; if your first-mortgage rate is already high, a cash-out refinance may be worth comparing.
Common uses
Texas homeowners commonly open a HELOC for home improvements, debt consolidation, education costs, or to keep flexible emergency access to their equity. See more everyday reasons on the homepage.
One thing to plan for: because most HELOCs are variable-rate, your payment can change over time. It's worth asking any lender how the rate is set, whether there's an option to fix part of the balance, and what the payment could look like if rates rise.