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Home Equity Line of Credit (HELOC)
What Is a Home Equity Line of Credit?
A HELOC is a revolving line of credit secured by a home’s equity.
Unlike a lump-sum loan, a HELOC allows borrowers to draw funds as needed during a set draw period.
Interest rates are typically variable.
Why It Matters in a Mortgage
A HELOC provides:
- Flexible borrowing
- Interest-only payment options during draw period
- Access to funds for ongoing expenses
However, variable rates mean payments may increase over time.
Failure to repay can lead to foreclosure.
How It Works
- Draw period (often 5–10 years)
- Repayment period follows
- Borrower can borrow, repay, and re-borrow within limit
Rate adjustments are tied to benchmark indexes influenced by the Federal Reserve.
HELOC vs. Home Equity Loan
HELOC → Revolving credit
Home Equity Loan → Fixed lump sum
Flexibility differs.
FAQs About HELOCs
Can HELOC payments increase?
Yes, rates and required payments may change.
Is a HELOC a second mortgage?
Yes, it is typically subordinate to the primary mortgage.
Can funds be used for non-home expenses?
Yes, but the home remains collateral.
Related Terms
