How Smart Homeowners Use HELOCs Over a Lifetime

With a home equity line of credit¹, you can pay for home improvements, consolidate debt, and access cash when you need it!

Owning a home can provide you with a sense of security about your future. It can also become a valuable resource to utilize to fulfill other needs and pursue your goals through a home equity line of credit (HELOC).

If you obtain a mortgage to buy your home, over time the percentage of your monthly payment that goes toward the principal (rather than interest) increases, and you build equity. Your property value also may appreciate over time. The amount you have paid off and the estimated market value of your home work together to qualify you for a HELOC.

What is a HELOC?

A HELOC is a tool that savvy homeowners use to access capital to improve their home, pay for major expenses such as college tuition, and consolidate debt. It’s the market value of your home minus what you owe on the mortgage. Say, for example, you buy a home for $367,969, which is the median home price in America in 2025, and it appreciates to an estimated $400,000 in market value. If over time you have paid off $167,969 of your mortgage, your equity would be the difference, $200,000.

As a line of credit, a HELOC allows you to borrow against the equity in your home. Old National Bank, for example, gives qualified homeowners the opportunity to borrow up to 80% to 89.99% of their home equity. If you have $200,000 in home equity, then you may be able to access a credit line of $160,000 to $179,980.

How Does a HELOC Work?

As revolving lines of credit, HELOCs operate differently from installment credit, such as car loans or home equity loans, where you have a fixed payment every month. They are more like credit cards, allowing you to borrow up to a certain limit. You can tap into the money when you need it via online or mobile transfers, with a debit card, or with paper checks.  

Like credit cards, HELOCs may begin with a lower introductory rate; however, the rate is variable, which means it can rise or fall in relation to the base index rate or prime rate. this means your monthly payments can also change based on changes to the variable rate on your loan. If you prefer having a more predictable monthly payment, another loan option should be considered.

HELOCs have a set time frame, known as a draw period, during which you can access funds and pay only the interest for five to 10 years. However, paying more—toward the principal—allows you to use the funds again during the draw period. You can borrow against your approved credit line (available credit balance) again and again, as you pay down the credit balance you owe. 

After the draw period expires, you enter the repayment period and start to pay back the unpaid balance you borrowed. You will not be allowed to borrow any further funds against the former credit line, and you will begin to repay both the principal and the interest over a fully amortized fixed repayment term. 

How to Use a HELOC for Home Improvement

There’s common advice about buying a home: Look for the worst house in the best neighborhood. The idea is to upgrade it over time. The key is your willingness to work on your home or pay someone to do it for you.

For example, Olivia and Noah are 30-something DIYers who can handle most home projects with a little elbow grease and guidance from YouTube. They bought a home for $300,000 expecting to make significant updates over the next decade. The home needs kitchen upgrades and a bathroom tear-out. The roof might need replacing and the septic system is aging. Then there are perennial cosmetic concerns: paint colors, siding, trim, and new plantings for the yard.

Olivia and Noah live with some of the issues while building up their home equity. After five years, they have enough equity to open an $80,000 HELOC. They use $55,000 for a new bathroom, custom kitchen cabinets, and energy-efficient appliances. These improvements could have significant impact on the value of their home if they were to sell, so they are good long-term investments.

Olivia and Noah use additional money from the HELOC to manage smaller improvements. With 10 years of drawing down before they have to start paying back the principal, they are comfortable spending the money to better their home. 

When the draw period ends, they expect to be entering their peak earning years. Still, the payments during the repayment period will be higher, because they include the remaining principal and interest owned, as well as an additional margin added to the interest rate in effect at the time the draw period ended.  Check the terms of your HELOC agreement carefully.  And, if the homeowner's finances change, they may be able to refinance their current HELOC when it is set to go into the repayment period, adding a new 10-year draw period.

Using a HELOC to Consolidate Debt

With interest rates much lower than typical credit cards, HELOCs are a useful way to consolidate debt.

For example, when Mike bought his home 15 years ago, he paid $250,000 and put 20% down. He refinanced in 2021 and now has a 15-year loan locked in at a 2.85% interest rate. With nearly $150,000 in home equity, Mike is comfortable having a $50,000 line of credit for when he needs it. He decides to open up a HELOC so that he can have better access to capital for his finances.  

Mike uses his HELOC to consolidate outstanding credit card debt, a car loan, and another loan, lowering his interest due on about $22,000 in balances. He doesn’t wait until the end of the draw period to pay back the principal on his HELOC, which saves him money on interest payments in the long term.

Mike's HELOC is also a backup emergency fund and an avenue for quick access to cash or to cover a surprise bill or fee. When he needs to consolidate additional debt, he taps it. Since he pays back the principal he borrows during the draw period, he always brings his line of credit back to $50,000 in available cash.

Mike will be retiring as his HELOC moves into its repayment period, and he has already calculated how much of his drawdowns from his 401(k) and traditional IRA accounts need to be set aside for payments if he needs it. He’s confident that his financial plan makes sense because his mortgage will be paid off before he retires.

How to Use a HELOC for Major Expenses

Jess and Alex, who have a 14-year-old daughter, are worried about the soaring price of a college education. The average cost of a four-year school with expenses is $38,270 a year. While they have saved about two years' tuition and fees in a tax-advantaged 529 plan account, they are looking for more ways to limit Jess' student loans.

They bought their home in 2005 and have 10 years left on their mortgage payments. With about $350,000 in equity, they're considering using it to pay for some of their daughter’s education. Another option would be to cash out some retirement savings, but that would incur substantial taxes and penalties. 

Jess and Alex qualify for a HELOC with a $250,000 line of credit. They use the funds to pay for the first two years of their daughter’s college and also to buy her a used car to take to school. They let the money they have saved in their 529 plan sit for another two years because it will continue to grow in value, and then use it for her third and fourth years of tuition.

Jess and Alex are thinking long-term about their finances. The interest they will pay on their HELOC for the education, though variable, is lower than what they are earning in their 529 plan. Once the HELOC goes into the repayment period in 10 years, they can pay down the principal with other savings they are building. If things change and they don’t need the money, the HELOC doesn’t require they draw against their available credit line.

Find Guidance When You Need It

If you're ready to explore whether a HELOC could work for your financial plans, Old National's experts are available. Learn more about Old National's HELOC offerings, access our HELOC calculators, and set up an appointment with one of our bankers. We're here to help! 

¹ All Old National Bank loans and lines of credit are subject to credit review and approval. Property insurance required for all loans secured by real estate. Rates are subject to change daily. Contact your Old National Banker or Residential Lender for current loan rates and program qualifications. NMLS #459308.  0825-003