Should you get a HELOC? Here are the pros, cons, and alternatives

If you own your home and need some extra cash for an important financial goal—whether it’s to catch up on debt, cover an emergency, or take care of repairs—you may have more options than you think. 

A home equity line of credit (HELOC) could let you access the value you’ve built in your home and turn it into funds you can use when you need them. In the right circumstances, a HELOC could be a smart way to get the breathing room you’re looking for.

It helps to know the facts before you make a decision. Let's look at how a HELOC works, the pros and cons, and when it might make sense to use one. 

What is a HELOC and why consider one? 

HELOC stands for home equity line of credit. Home equity is the difference between what you owe on your home and what it's worth on the open market.

A HELOC is a mortgage loan guaranteed by your home. That means the lender could sell your home to recover its money if you stop making payments. Make sure you have a solid repayment plan in place before you apply for a HELOC.

How HELOCs work

When you get a HELOC, you have an initial draw period in which you can access funds. In other words, you can borrow, repay, and borrow more as often as you like, up to your limit. Once the draw period ends, you enter the repayment period and can’t borrow more. 

You’ll have a payment during both the draw period and the repayment period. The payment amount could change during the draw period if your balance changes, or at any time if your interest rate changes. 

Lenders decide how long the draw and repayment periods last. Achieve Loans home equity line of credit, for example, has a five-year draw period. Repayment terms are 10, 15, 20, or 30 years. 

HELOCs offer flexibility, since you could use the money for virtually anything. HELOCs are a popular loan option for homeowners for several reasons:

• HELOCs may offer a way to borrow money at lower rates. As a secured loan, HELOCs typically have lower interest rates than other types of credit. If you qualify, a HELOC could be cheaper than a personal loan or a credit card. 

• The amount you could borrow with a HELOC is often more than you could get with another kind of loan.

• Interest paid on a HELOC could be tax-deductible. 

• With a HELOC, you can borrow from your credit line, pay it back, and borrow again as many times as you like during your draw period, up to your credit limit. 

HELOCs aren't the only way to borrow, but they offer some upsides that other loans or lines of credit don't. 

Situations when a HELOC might be a smart choice

A HELOC could be a good idea if it's used in a way that benefits you financially or physically. For example, if you use HELOC funds to make home repairs and upgrades that increase the value of your home or add features designed to keep you safe, that could be a good use of your home's equity.

Here are some of the situations in which a HELOC could be a good choice:

• Debt consolidation. If you have high-interest credit card debt, you could use a HELOC to pay it off. One of the biggest potential advantages is that you could bring your total monthly payment down to a more affordable level. Because your home acts as collateral, you're likely to find that a HELOC carries a lower interest rate than other loan types, making it a solid option for consolidating high-interest debt.

• Home repairs/improvements. Home improvements could increase your home's value, which can mean more equity. A HELOC could be a great way to fund improvements around the house, like making repairs, remodeling or adding a room, or adding safety features that will allow you to age in place.

• Medical bills. Medical debt can quickly pile up if you have a serious illness or injury. You might use a HELOC to pay those bills off if you don't qualify for medical debt forgiveness.

• Emergencies. A HELOC could act as a stand-in for an emergency fund. If an unexpected expense comes along, you could use your HELOC funds to cover it if you don't have more affordable options. 

• Education. A HELOC could be a suitable choice for covering education costs if you want to change or advance in your career and don't qualify for an affordable student loan. 

• Sufficient equity. The equity in your home is a nice asset to have and is factored into your net worth. If, after taking out a HELOC, you remain comfortable with the amount of equity left in your home, you may be on the right path. 

• Flexibility is important. One of the most attractive features of a HELOC is the ability to draw from it when needed and reuse it up to your credit limit during the draw period. 

When you get a HELOC is just as important as why. The best time to get a HELOC (or any other loan) is when you can qualify for the lowest interest rates. If HELOC rates drop or your credit score goes up, that could be your opportunity to minimize the cost of covering a large expense. 

When a HELOC may not be the best choice

A HELOC could put cash in your bank account when you need it. Still, there are some HELOC risks to know. 

Here are some examples of when not to get a HELOC:

• You're not comfortable putting your home on the line. HELOCs are tied to your property. The biggest risk of a HELOC is that if you stop making loan payments, you could lose your home. 

• Interest rates may increase. Achieve Loans HELOC features a fixed interest rate that won't change during your loan, but other HELOCs may have variable rates. A variable-rate HELOC could become a headache if your rate increases. A higher interest rate makes it more expensive and usually means higher payments.

• Your credit could use some work. Fair or poor credit isn't a barrier to a HELOC, but it could make it more expensive. Even a small difference in HELOC rates could cost you a sizable amount of money over time.  

• Unstable income or job uncertainty. If your job feels a little shaky or your income is undependable, putting your home at risk by borrowing against its equity may not be a good idea. 

• Already carrying high debt. If you're already carrying more debt than is comfortable, now may not be the right time for a HELOC. The only exception could be if you plan to use your HELOC to consolidate high-interest debt like credit cards. 

• Bankruptcy might be on the table. If there's any chance you'll file for bankruptcy protection in the near future, you don't want to use (and risk) the equity in your home to pay off credit cards, personal loans, or other miscellaneous debt. Chapter 7 bankruptcy generally won't get rid of secured debt.

• You don't have a clear repayment plan. If you don’t know precisely how you're going to repay the HELOC, it may not be the right time to take on a new financial obligation—particularly when something as valuable as your home is at stake. 

• The cause of your debt is a spending problem that hasn’t been addressed. If you have a problem that leads you to overspend or are married to someone who can't control their spending, a HELOC may only act as a Band-Aid. Before giving serious consideration to a HELOC, it's a good idea to address any issues that led to your current financial situation. Once that's under control, it's a whole new ballgame. 

Are any of these reasons to never get a HELOC? Not necessarily. If you can improve your credit score, for example, or work out a solid budget plan for repayment, then a HELOC could still be a good choice. 

Example of when a HELOC is a good idea

Whether to borrow from your home's value is a personal decision, but it helps to have an example of when a HELOC could make sense. Here's a hypothetical view of how to use a HELOC wisely. 

Let's assume your home is worth $350,000 and you have $200,000 in equity. You decide to get a $50,000 HELOC to do some renovations. You end up withdrawing the entire $50,000 to fund your home makeover project. 

After renovations, your home's value increases by $75,000. You owe $200,000 on your first mortgage and HELOC, but the home is now worth $425,000. In this scenario, you've come out ahead in terms of your overall equity value. 

Even better, you’ve improved the quality of your daily life.

Ask yourself, What could I gain if I get a HELOC? 

Your answer could help you decide if a HELOC is a good idea

Is a HELOC a good idea? Pros, cons, and how to decide

What are the pros and cons of a HELOC? Here are the main HELOC advantages and disadvantages to know. 

Pro: HELOCs are flexible

When you take out an auto loan, the money is used to purchase a vehicle, and when you apply for a mortgage, it's because you want to buy a home. The same is not true of HELOCs; you can do almost anything with the money, from paying off medical bills to remodeling your basement. Better yet, you may not need to take all the money at once, giving you added flexibility in how you use it.

Pro: Potential for larger loan amounts

Depending on the amount of equity in your home, you could have access to a larger loan amount than you would with a personal loan. Let's say you plan to make repairs and renovations to your property and have a budget in mind of $50,000. While landing an unsecured $50,000 personal loan might be a stretch, the fact that you're using the equity in your home to secure the loan gives you better odds of getting the funds you need with a HELOC.

Pro: You might get a tax break

You probably know that the interest you pay on your primary mortgage could be tax-deductible, but that tax break also applies to HELOCs when certain conditions are met. 

In 2025, the IRS allows you to deduct HELOC interest if you use the money to build, buy, or substantially improve the home you borrowed against. After 2025, the interest could be tax deductible no matter what you borrowed for.

Tax deductions lower your taxable income, which could help you get a bigger refund. Talk to a qualified tax professional about your specific financial situation.

Pro: Potential for low rates

If you qualify, a HELOC could offer a lower rate than other loan options. Just keep an eye on the type of interest charged by your HELOC. 

Many HELOCs have variable interest rates. With a variable-rate HELOC, the rate could go up or down over time. That means that not only could you pay more in interest, but your payment could also increase. 

A fixed-rate HELOC, like the one offered by Achieve Loans, has a set interest rate that does not fluctuate during your loan. A fixed-rate HELOC may be preferable if you can lock in a low rate for the long term and want some certainty about your monthly payments. 

Con: Secured by your home

HELOCs are guaranteed by your home. If something happens and you can't make your payments, the lender could foreclose on your home and sell it to recover its losses. A foreclosure is likely to severely hurt your credit, too. 

Con: Most HELOCs have variable rates

While the Achieve Loans HELOC is a fixed-rate loan, most HELOCs are not. The majority have a variable interest rate, meaning the interest rate and payment could change throughout the life of the loan. Not knowing for certain how much your loan payment will be could make it difficult to stick with a household budget. 

Con: Have to repay in full if you sell

When you sell your home, part of the proceeds from the sale go toward paying off any outstanding mortgages on that property. This includes your HELOC; if you have a HELOC, you'll need to pay it off in full when you sell the property tied to it. 

This could be fine if your property has maintained its value, but that isn't always the case. If there were a major economic downturn, like the 2008 financial crisis, your home value could drop.

If your home's value decreases enough, you could wind up underwater. Being underwater or upside down on your mortgage means you owe more than your property is worth. This could make it harder to refinance or sell your home since you're still on the hook for the full amount of your loans even if your home's value drops.

Con: Can't fix every debt problem

Yes, you could use a HELOC to consolidate your debt, potentially reducing your monthly payments and simplifying your life. However, a HELOC isn't going to address the root cause of your debt, which is often the key to long-term financial success. 

If you find yourself in debt because of living beyond your means or overspending, you'll have to deal with those issues yourself, on your own or with the help of a financial professional.

Alternatives to consider if you’re unsure about a HELOC

A HELOC is just one way to borrow when you need cash. It may be worth your time to explore HELOC alternatives. 

Here are a few possibilities to consider.

• Home equity loan. In terms of a HELOC vs. a home equity loan, they're basically the same idea with some differences in execution. With a home equity loan, you get a lump sum instead of a line of credit, and you repay the balance with fixed monthly payments until it's done with no option to reborrow. A home equity loan is still secured by your home and could be at risk if you stop making payments.

• Cash-out refinance. A cash-out refinance allows you to refinance your existing mortgage with a new mortgage for more than you currently owe. Then you get the difference in cash. Let's say your home has a market value of $400,000 and you have a $200,000 balance on your mortgage. If you refinance your house for $250,000, the lender will pay off the $200,000 mortgage balance and cut you a check for the remaining $50,000. You’ll get funds now, but you may end up with a higher interest rate and higher monthly payments.

• Personal loan. A personal loan is money you borrow for personal reasons. Personal loans are typically unsecured and aren't tied to your home. They usually have fixed interest rates and set monthly payments. The interest rates on personal loans tend to be higher than the rates on HELOCs, and the loan limits tend to be lower.

• Credit card. Credit cards could help you cover expenses in a pinch, though they typically have much higher interest rates than HELOCs. Credit limits may also be much lower than you need. You could take a small cash advance from a credit card, but that's one of the most expensive ways to borrow since interest rates often hover around 30%. 

• Retirement loans. If you have a 401(k) through your job, you may be able to borrow from it if your employer allows. The downside is you lose growth of the funds you borrow. Additionally, if you separate from your employer for any reason, you need to repay the entire loan in full. Otherwise, you could get hit with a sizable tax bill. 

• Friends and family. You might turn to friends and family if you need a smaller loan. Consider a formal loan agreement so that everyone involved is aware of the terms of the loan and when it will be repaid. 

• Budgeting/saving. You could try reworking your monthly budget so you can save enough to pay in cash. Imagine you're getting married and want to have the wedding of your dreams. Rather than going into debt to pay for the nuptials, decide how much you can put aside as a couple each month and save until you can pay for it. 

What's next

• Calculate how much equity you have and how much of it you might be able to borrow with a HELOC. 

• Check your credit score. If it’s not where you want it to be, find out what you need to do to improve it. 

• Review your budget to find out where a HELOC payment might fit into it. 

• If you're unsure where to begin, speak with a loan advisor who can give you an idea of how their HELOC works and the best way to ensure you qualify for the lowest interest rate and loan terms. 

Whether you're looking to get control of high-interest debt or make big changes to your life, both HELOCs and home equity loans offer advantages. All that's left to do is decide what's best for you.