Also written as:
HELOC
A revolving line of credit secured by your home equity, kind of like a credit card backed by your house. Variable rate, draw what you need, pay back over time.
A HELOC — Home Equity Line of Credit — is a revolving credit line secured by the equity in your home. Once approved for a credit limit, you can borrow, repay, and re-borrow throughout a draw period (usually 10 years), then enter a repayment period (usually 10–20 years) where you pay it off.
HELOCs are different from regular mortgages in a few key ways: they have variable interest rates (tied to the prime rate), you only pay interest on what you've actually drawn (not the full credit limit), and there's typically no closing cost or minimal closing cost compared to a refinance.
Good uses: home improvements, emergency fund backstop, college tuition, debt consolidation. Risky uses: vacations or anything you can't reliably pay back — your home is collateral.
Example
You have $200K in home equity. A lender approves a $100K HELOC at prime + 1% (currently ~9.5%). You draw $40K for a kitchen remodel. You pay interest only on that $40K — about $317/month — while leaving $60K available for future use.
Also known as
HELOC, home equity line, equity line of credit, second mortgage line
Source:
CFPB