Edited by Michelle TipswordWhat You Need to Know About HELOCs in 2026
Quick Answer
The Federal Reserve’s benchmark rate has been steadily declining since September 2024. The expectation is that HELOC interest rates will also continue dropping in 2026.
A HELOC, or home equity line of credit, allows you to borrow against the equity you've built in your home. HELOC interest rates have been on the decline, and they're expected to continue to drop in 2026. That could motivate homeowners to explore this financing option—but HELOCs come with pros and cons, so it's important to understand how they work before making a decision. Here's a glimpse at what you need to know about HELOCs in 2026.
HELOC Trends and Insights for 2026
The Federal Reserve's latest Household Debt and Credit Report takes a closer look at HELOC activity and balances as of the second quarter (Q2) of 2025. That might offer some clues regarding what to expect in 2026.
- Total outstanding HELOC balances continue to climb. This number has been steadily increasing in recent years, reaching $411 billion—up $9 billion from the first quarter (Q1) of 2025.
- Homeowners are accessing higher HELOC credit limits. How much you can borrow is determined by your credit score, debt, income, mortgage payment history and home equity amount. Overall HELOC credit limits rose by $18 billion from Q1 to Q2 2025.
- Serious delinquencies are on the rise. From Q1 to Q2, the amount of homeowners who were seriously delinquent on a HELOC increased slightly—this means being 90 or more days past due on payment. Defaulting on a HELOC puts your home at risk for foreclosure.
Interest rate trends are also worth mentioning. HELOC interest rates are closely tied to the federal funds rate, which is a benchmark rate that's established by the Federal Reserve. Banks use this rate when borrowing and lending money between each other, but it often trickles down to the annual percentage rates (APRs) consumers pay on loans and lines of credit. When this rate moves up or down, rates on HELOCs and home equity loans tend to do the same.
The federal funds rate has been gradually declining since September 2024—and rates are expected to continue dropping heading into 2026.
Compare HELOC rates
Check today’s HELOC offers and current rates to find the right line of credit for accessing your home’s equity.
How Do HELOCs Work?
Unlike a home equity loan, which provides a lump-sum payment, a HELOC offers a credit line that you can access on an as-needed basis. That means you can borrow money, repay it and borrow again (up to your credit limit) repeatedly during the HELOC's draw period. That typically lasts 10 years, and you'll likely make interest-only payments during this time.
Once the repayment period begins, you'll chip away at the principal amount borrowed plus interest, usually over a 20-year period. Just keep in mind that HELOCs often have variable interest rates. As a result, your rate and payment amount can fluctuate over time. But rates may be lower than other financing options because a HELOC uses your home as collateral.
Pros and Cons of HELOCs in 2026
Like any other type of financing, HELOCs have advantages and downsides. Here are some important things to think about before moving forward.
Pros
-
Rates may continue dropping in 2026. With the federal funds rate expected to drop further in 2026, it could be a good time to consider a HELOC that has a low introductory offer for the first six to 12 months. That can allow you to benefit from a low starter rate while you wait for benchmark rates to catch up.
-
HELOCs are flexible. With a HELOC, you can borrow as much or as little as you like, up to your credit limit. You can also pay down the principal amount to free up more of the credit limit. That can help you avoid borrowing more than you need, or getting stuck in a situation where you need more funding than you originally predicted. You'll only owe interest on the amount you borrow.
-
Interest payments might be tax deductible. Through the end of 2025, HELOC funds that are used to substantially improve your home may be tax deductible. But from 2026 onward, you might be able to claim that deduction regardless of what you use the money for. Certain dollar limits apply.
Cons
-
Rate drops aren't guaranteed. While rates are expected to go down in 2026, it isn't set in stone. Economic conditions can change—and that could prompt the Federal Reserve to increase its benchmark rate. That might happen when inflation is running high since increased rates can help curb consumer spending.
-
Your home equity decreases. You're essentially trading home equity for a credit line. If you sell your home after taking out a HELOC, part of the sale proceeds will go toward satisfying your outstanding balance—so you won't get as much from the sale.
-
You could end up owing more than your home is worth. This is known as being underwater on your home. It could happen if your mortgage balance and HELOC combined exceed your home's current market value. That could be a problem if you want to refinance or sell your home.
-
You can expect closing costs. This typically works out to 2% to 5% of the loan amount. So if you take out a HELOC for $150,000, you might pay anywhere from $3,000 to $7,500 in closing costs.
Is a HELOC a Good Idea?
Whether a HELOC is right for you will depend on your financial situation. Below are some additional factors to consider.
- How much home equity you have: You'll likely need 15% to 20% equity to qualify for a HELOC, and you can typically borrow up to 85% of your home's value. But taking out a HELOC is akin to assuming a second mortgage, so you'll want to ensure that you can afford to repay it.
- Your credit score: Every lender is different, but you'll likely need a minimum credit score of 680 to qualify for a HELOC. Some may require a credit score as high as 720.
- Your plans: If you're up against a financial emergency or need to make crucial home repairs, a HELOC might unlock low-rate financing. But it may not be the best option if you plan on using the funds for nonessentials, especially since your home is used as collateral. HELOCs can take several weeks to complete, so they also may not be the best option if you're needing the money quickly.
Alternatives to HELOCs
If you decide that a HELOC doesn't make sense, you can consider these alternatives.
| Home Equity Loan | Cash-Out Refinance | Personal Loan | Intro 0% APR Credit Card | |
|---|---|---|---|---|
| Collateral required | Yes | Yes | No | No |
| Approval time | Typically four to seven weeks | Usually 30 to 60 days | One to five business days but could be sooner | Could happen instantly but might take up to 30 days |
| Interest rates | Tend to be slightly lower than HELOCs | Often lower than HELOCs and home equity loans | Typically range from 7% to 36% | Higher than most other financing options, typically around 20% or more |
| Repayment terms | Five to 30 years | 15 or 30 years | Often one to seven years | Revolving credit line if account remains open |
| Best for | Home improvement projects and emergencies | Large, one-time expenses when you can also lower your mortgage rate | Small to medium one-time expenses when you don't have an emergency fund and don't want to use your home as collateral | Borrowing with a plan to pay off the balance before the introductory period ends |
Home Equity Loan
A home equity loan is like a HELOC in that both allow you to borrow against the equity you've built in your home. The main difference is that a home equity loan provides a lump sum of cash as opposed to a credit line. These installment loans often have fixed monthly payments and interest rates.
Cash-Out Refinancing
Cash-out refinancing involves taking out a new mortgage that exceeds your home loan balance. You'll receive the difference as a lump-sum payout that you can use for any reason. You'll then have a new mortgage payment and loan term. It can be a good option if you need access to cash and can secure a lower mortgage rate in the process. If your home value has increased, it could also allow you to drop your mortgage insurance.
Personal Loan
A personal loan is an unsecured installment loan, which means that there's no collateral attached to it. Unlike HELOCs, they tend to have fixed interest rates and there are no closing costs—but some lenders charge loan origination fees. APRs can be on the higher side and loan amounts may be smaller, but having excellent credit could make you eligible for a better rate.
Intro 0% APR Credit Card
This type of credit card offers a promotional 0% intro interest rate for a predetermined amount of time, giving you access to interest-free financing. That could make it more affordable to finance a big-ticket item—assuming you pay off the balance before the interest kicks in. You might earn credit card rewards to boot. Introductory periods typically range from six to 21 months.
Frequently Asked Questions
The Bottom Line
A HELOC could be a flexible financing option that allows you to borrow funds as needed, though your home will be used as collateral. HELOC rates are expected to continue falling in 2026, along with the Federal Reserve's benchmark interest rate. Homeowners will have to wait and see how things play out, but lower rates translate to decreased borrowing costs.
If you're thinking about taking out a HELOC in 2026, it's important to know where your credit stands. You can check your FICO® ScoreΘ and credit report for free from Experian, and view moves you can make now to improve your credit in preparation for applying for a HELOC in the future.
What’s on your credit report?
Stay up to date with your latest credit information—and get your FICO® Score for free.
Get your free reportNo credit card required
About the author
Marianne Hayes
Marianne Hayes is a longtime freelance writer who's been covering personal finance for nearly a decade. She specializes in everything from debt management and budgeting to investing and saving. Marianne has written for CNBC, Redbook, Cosmopolitan, Good Housekeeping and more.
Read more from Marianne