Need extra cash for a big purchase or a home renovation? Credit cards may be convenient for everyday buys, but homeowners have a powerful alternative: a Home Equity Line of Credit (HELOC). A HELOC may offer several advantages to qualified borrowers—including interest rates that may be lower than credit card interest rates.
At Newrez, we want to equip you with the tools and knowledge to reach your financial and homeownership goals. In this article we’ll break down how credit cards and HELOCs stack up so you can choose the option that best fits your needs.
How a HELOC Works
A Newrez Home Equity Line of Credit is a revolving line of credit secured by the equity you’ve built up in your home. A HELOC has two phases:
- Draw Period: You can borrow money up to your approved line amount for the first 3 years of your HELOC. During these 3 years, you only pay interest on your Newrez HELOC.
- Repayment Period: You are not allowed to make any more draws during the following 17 years of your Newrez HELOC. During this period you are repaying the principal amount you used with interest.
The interest rate of a HELOC is based on the Prime Rate published daily in the Wall Street Journal®.
How a Credit Card Works
Even if you have a credit card in your wallet right now, you might not be entirely familiar with how they work. Credit cards are unsecured revolving lines of credit with no defined draw or repayment periods.
- You borrow day to day, up to your credit limit.
- You typically get a grace period of 21 days or more to pay the full balance before interest accrues.
- Past the grace period, interest rates can average upwards of 20%.2
Credit cards may be convenient for everyday purchases and sometimes offer rewards for their use, but if you don’t pay them off on time your debt may quickly accumulate. It’s a good idea to keep track of your spending when you use a credit card so your bills don’t stack up unexpectedly.
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Credit Card Interest Rates vs. HELOC Interest Rates
HELOC rates are based on the Prime Rate, which is posted regularly by the Wall Street Journal®. Compare that to the double-digit interest rate of credit cards, which have historically remained higher than the prime rate that is used for HELOCs.1
When to Use a HELOC
HELOCs give qualified homeowners a flexible spending tool that can empower them to pay for unpredictable expenses whenever they need, during their draw period. A few popular ways to use a HELOC include:
- Funding Major Home Renovations: Is your kitchen a bit outdated? Have you been dreaming of a beautiful backyard oasis? Opening a HELOC may enable you to fund each step of a renovation easily.
- Strategic Debt Consolidation: Pay off higher-interest debt—which may include credit card debt—by consolidating your debt into your HELOC. This strategy could potentially help you save on interest. Once you’ve done this, put a financial plan in place so you don’t recharge those credit cards afterwards.
- Planned Big-Ticket Expenses: Use a HELOC to cover tuition, medical procedures or wedding costs.
The Bottom Line
You may use credit cards for day-to-day spending, but if you’re a homeowner with some equity built up, don’t discount the power of a HELOC to help with larger expenses. Your equity might earn you access to low-interest funding, which could be great news for your bank account.
Have questions about what your home’s equity can do for you? Reach out to a Newrez mortgage expert today, and they’d be happy to walk you through your options.
References:
1 Historical Credit Card Interest Rates (1991 - 2023)
2 What Is The Average Credit Card Interest Rate This Week? August 11, 2025 – Forbes Advisor
The Wall Street Journal® is a registered trademark of Dow Jones & Company, Inc.
This HELOC is an open-end line of credit, available on owner occupied properties, where 75% of the approved full credit limit (minus the origination fees) will be drawn at the time of closing. Additional draws may be available after a 90-day period within the first 3 years not to exceed the available credit limit. Actual rates available to you may vary based on several factors including your credit score and combined loan-to-value. Loan amounts range from $50,000 to $350,000. We may determine home value and resulting equity through independent data sources and automated valuation models. Only available for eligible borrowers and property types. Not all applicants will be approved, pre-approval is based on data you have provided and certain assumptions that must be verified and subject to underwriting approval. Not available in all states or territories. Contact Newrez for more information.
