What Is HELOC (Home Equity Line of Credit)?
HELOC (Home Equity Line of Credit): A revolving credit line secured by your home's equity, usually with a variable rate.
Also called: home equity line of credit
A home equity line of credit (HELOC) is a second loan that works like a credit card secured by your home. You borrow what you need, when you need it, up to a limit.
How it works
- Draw period: often 10 years, when you can borrow and may pay interest only
- Repayment period: often 10 to 20 years, when you repay principal and interest
- Rate: usually variable, tied to the prime rate
Limits
Lenders typically allow your first mortgage plus the HELOC to total 80% to 90% of the home's value.
HELOC vs. cash-out refinance
A HELOC keeps your existing first mortgage and its rate. A cash-out refinance replaces it. If your first mortgage rate is low, a HELOC is often cheaper.
Good to know
A HELOC is a lien on your home. Missing payments can lead to foreclosure.