What Is a Home Equity Line of Credit (HELOC)?

Chris Manzano
Aug 22, 2024
2 min read

A home equity line of credit, or HELOC, is a revolving line secured by the home. It may allow borrowing, repayment, and additional draws during an available period, subject to the account terms and credit limit.

Quick Takeaway: A HELOC can provide flexibility, but the home is collateral and the rate is often variable. Payments and available credit can change, so the repayment structure should be understood before borrowing.

How It Generally Works

The account may have a draw period followed by a repayment period. During the draw period, the borrower may access available funds under the account terms. Later, borrowing may stop and repayment requirements may increase.

What is a home equity line of credit — A HELOC should be evaluated as debt secured by the home, not as extra income.

Potential Uses

Planned home repairs or improvements
A defined education, business, or emergency need
Debt restructuring after careful cost and behavior review

Risks to Review

Variable rates may increase the payment
The payment may rise when the repayment period begins
Fees, minimum draws, inactivity rules, or closure terms may apply
Failure to repay can place the home at risk

Compare Other Equity Options

A home equity loan may provide a lump sum with different payment characteristics. A cash-out refinance replaces the first mortgage. The costs, rate structure, lien position, term, and purpose should be compared.

Important to Know: Eligibility, credit limits, rates, fees, tax treatment, and payment rules vary. Tax questions should be directed to a qualified tax professional.