How a HELOC works
A home equity line of credit is an open-end loan secured by your home. During the draw period, you can borrow up to the available limit, repay funds and borrow again, subject to the agreement. HELOC rates are commonly variable, so the payment can change.
StructureRevolving credit secured by home equity
First mortgageUsually remains unchanged
PaymentVaries with balance, rate and program terms
HELOC versus a home equity loan
A HELOC is designed for repeated draws up to a limit. A closed-end home equity loan generally delivers a lump sum with a scheduled repayment structure. One may fit an ongoing project, while the other may fit a known one-time amount.
Common uses
- Home renovation or repair projects
- Emergency or short-term liquidity
- Education or other planned expenses
- Debt consolidation after comparing total cost and risk
- Accessing equity while preserving a favorable first-mortgage rate
Important risks and questions
- Your home secures the debt and may be at risk if payments are not made
- A variable rate can increase the required payment
- Draw and repayment periods may calculate payments differently
- Annual fees, early-closure fees and other costs vary
- The lender may limit or freeze additional draws in circumstances permitted by the agreement and law
What determines the available line?
The lender reviews property value, current mortgage balances, credit, income, debts and program limits. Automated valuation may be available in some cases, while others require an appraisal or additional property review.