What is a HELOC?
A HELOC — Home Equity Line of Credit — lets you borrow against the equity in your home: the difference between what your home is worth and what you still owe on your mortgage. Instead of a single lump sum, a HELOC works like a credit card secured by your house — you're approved for a credit limit and draw what you need, when you need it, during a set window of time.
How a HELOC works
- Draw period: Typically 5–10 years when you can borrow, repay, and borrow again — usually paying interest only on what you've drawn.
- Repayment period: After the draw period (often 10–20 years), you can no longer borrow and you repay principal plus interest.
- Variable rate: Most HELOCs carry a variable interest rate, so your payment can rise or fall over time.
- Secured by your home: Because your house is the collateral, rates are usually lower than credit cards or personal loans — but missed payments can put your home at risk.
HELOC vs. home equity loan
A home equity loan gives you a one-time lump sum at a fixed rate with predictable payments. A HELOC gives you flexible, revolving access to funds, usually at a variable rate. HELOCs suit ongoing or uncertain costs (a phased remodel, tuition over several years); a home equity loan suits a single, known expense.
Common uses
Homeowners often use a HELOC for home improvements, consolidating higher-interest debt, building an emergency reserve, or covering major one-off expenses. Because the funds are revolving, you only pay interest on what you actually use.
Top 5 questions to ask a HELOC lender
- What's the interest rate — and how is it set? Ask whether it's variable or fixed, what index and margin determine it (e.g., Prime + a margin), how often it can change, and whether there's a rate cap or a fixed-rate conversion option.
- What are all the fees? Get the full list: application, appraisal, origination/closing costs, annual fees, and any charge to close the line early. Ask for the all-in cost, not just the rate.
- What are the draw and repayment terms? Confirm how long you can draw, whether the draw period is interest-only, the minimum draw and minimum monthly payment, and what your payment looks like once repayment begins.
- How much can I borrow, and how is that decided? Ask about the combined loan-to-value (CLTV) limit, how they'll value your home, and the credit score and income requirements you'll need to meet.
- Are there penalties or restrictions? Ask about prepayment or early-closure penalties, inactivity fees, and the lender's right to freeze or reduce your credit line if home values or your finances change.
Buying a home? A HELOC is just one piece of the puzzle — see our home buying guide for the full process and the questions to ask.
This page is for general education and isn't financial, legal, or tax advice. Terms vary by lender and situation — talk with a qualified local lender below about what fits you, and always compare offers.