HELOC (Home Equity Line of Credit)

Overview

A HELOC (Home Equity Line of Credit) is a revolving line of credit that uses your home's equity as collateral. It works like a credit card — you can borrow up to a certain limit, repay the amount, and borrow again. HELOCs are popular for home improvements, debt consolidation, and other major expenses.

How It Works

Your home's equity is the difference between its current market value and the outstanding balance on your mortgage. Lenders typically allow you to borrow 80-85% of your home's equity. HELOCs have two phases:

Draw Period

Typically 10 years — you can borrow funds as needed, usually paying only interest on the amount borrowed.

Repayment Period

Typically 20 years — after the draw period ends, you must repay the principal plus interest on the remaining balance.

Benefits

• Flexibility: Borrow only what you need, when you need it
• Lower Interest Rates: Rates are usually lower than credit cards or personal loans
• Tax Deductible: Interest may be tax-deductible for home improvements (consult a tax professional)
• Revolving Credit: Repay and borrow again during the draw period

Risks

• Variable Rates: Interest rates can fluctuate, increasing monthly payments
• Home as Collateral: Defaulting could lead to foreclosure
• Payment Shock: Monthly payments increase significantly when entering repayment period
• Closing Costs: May include application fees, appraisal fees, and closing costs

Common Uses

• Home renovations and improvements
• Debt consolidation (high-interest credit cards)
• Education expenses
• Emergency funds
• Major purchases

Related Glossary Terms

Related Calculation Tool

Calculate your HELOC options:

Frequently Asked Questions