What Is HELOC (Home Equity Line of Credit)?
A revolving credit line secured by your home equity, drawing funds as needed during a draw period.
Definition
A HELOC works like a credit card backed by your home equity. After approval, you can borrow, repay, and re-borrow up to your credit limit during the draw period (typically 10 years), paying interest only on what you use. After the draw period, you enter a repayment period (often 20 years) where you cannot draw more and must repay principal plus interest. HELOCs usually have variable rates tied to the Prime Rate.
Example
A homeowner with $200,000 in home equity might get approved for a $150,000 HELOC. Draw $50,000 to renovate; only pay interest on that $50,000 during the draw period.
Use It
Try the Mortgage Refinance CalculatorRelated Terms
LTV (Loan-to-Value Ratio)The loan amount divided by the property's appraised value, expressed as a percentage.Cash-Out RefinanceRefinancing for more than you owe and taking the difference in cash, using your home equity as collateral.Interest RateThe percentage a lender charges to borrow money, or that a bank pays on a deposit, per year.