Mortgage & Home Loans

What is HELOC?

A HELOC is a revolving credit line secured by your home equity. It works like a credit card: borrow up to a limit, pay it back, and borrow again during the draw period.

The draw period is typically 10 years—you can access funds and often make interest-only payments. After that comes the repayment period (15 to 20 years) where you pay back both principal and interest.

HELOC rates are almost always variable, tied to the Prime Rate. Since your home secures the loan, defaulting can lead to foreclosure. Lenders must disclose the variable-rate terms under the Truth in Lending Act.

Quick Facts

Loan StructureDraw period (typically 10 years) and repayment period

Interest Rate TypeVariable rate tied to Prime Rate

Credit TypeRevolving credit secured by real estate

Risk LevelForeclosure risk if borrower defaults

PRACTICAL EXAMPLE

You open a $100,000 HELOC and draw $20,000 to repair your roof. During the draw period, you pay interest only on the $20,000. Pay it back and you can borrow again — up to the full $100,000.

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RELATED TERMS

Learn More Key Concepts

MortgageA loan secured by real estate that you pay back in regular installments over a set term.

Home EquityThe current market value of a home minus any outstanding mortgage balances or liens on the property.

RefinancingThe process of replacing an existing mortgage with a new one under different interest rates or terms.

LTV RatioA lending risk assessment ratio calculated by dividing the outstanding loan balance by the property's appraised value.

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