Home Equity Line of Credit (HELOC)
A revolving credit line secured by your home's equity, with a variable rate and draw period followed by repayment.
A HELOC works like a credit card backed by your house. The lender approves a maximum credit limit based on your home's value and existing first mortgage, and during the draw period (typically 10 years) you can borrow, repay, and reborrow as needed.
After the draw period ends, the HELOC converts to a repayment phase, usually 20 years, where you pay back what you've borrowed in monthly principal and interest installments. Rates are almost always variable, tied to the prime rate plus a margin.
HELOCs are flexible but introduce variable-rate risk. They're a good fit for homeowners who want a standby reserve for opportunities or emergencies. Borrowers who plan to draw the full amount up front and hold a balance often do better with a cash-out refinance or fixed-rate home equity loan.
Related terms
Other terms you'll see alongside Home Equity Line of Credit
A refinance that replaces your existing mortgage with a new, larger loan and returns the difference to you as cash.
The portion of your home's value you own outright, calculated as current value minus what you owe on the mortgage.
The act of placing or moving a lien into a lower priority position relative to other liens on the same property.
The percentage of the loan balance the lender charges as the cost of borrowing, paid annually but accrued daily.
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