What is a HELOC, and how does it actually work?
A home equity line of credit lets you borrow against the equity you've built in your home - on your terms, as you need it. Here's how it works, what it costs, and when it makes sense.
- Draw only what you need, when you need it
- Usually a variable interest rate
- Common for renovations, debt consolidation, and reserves
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A HELOC is a line of credit, not a lump sum
Unlike a traditional home equity loan, which gives you one lump sum upfront, a HELOC works more like a credit card secured by your home: you're approved for a credit limit, and you draw against it as needed during a set "draw period," paying interest only on what you actually borrow.
Borrow As You Go
Draw what you need, when you need it, instead of taking a lump sum and paying interest on the whole amount immediately.
Revolving Access
As you pay down the balance during the draw period, that credit becomes available to use again - similar to a credit card.
Flexible Uses
Renovations, debt consolidation, tuition, or simply having equity on standby for whatever comes up.
Not the same thing
People often use the terms interchangeably, but they're structured differently. A HELOC is a flexible line of credit with a variable rate; a home equity loan (HELOAN) is a fixed-rate lump sum with fixed payments. See the full comparison here.
| Feature | HELOC | Home Equity Loan |
|---|---|---|
| Structure | Revolving line of credit | One-time lump sum |
| Interest rate | Usually variable | Usually fixed |
| Best for | Ongoing or uncertain expenses | One known, upfront cost |
| Payments | Interest-only during draw period, then repayment | Fixed principal + interest from day one |
Not sure which fits your situation?
HELOC FAQs
How much can I borrow with a HELOC?+
It depends on your home's value and how much equity you have, typically up to a combined loan-to-value ratio set by the lender. A loan officer can give you a real number based on your situation.
Is a HELOC interest rate fixed or variable?+
Usually variable, tied to an index like the prime rate. Some lenders offer the option to lock a portion of the balance at a fixed rate.
What happens when the draw period ends?+
The HELOC typically converts to a repayment period, where you can no longer draw new funds and instead pay down principal and interest on whatever balance remains.
Related guides
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