A Credit Line Backed by Your Home

A HELOC, short for home equity line of credit, lets you borrow against the equity you've built in your home, the difference between what your home is worth and what you still owe. Instead of receiving a lump sum like a traditional loan, you get access to a credit line you can draw from as needed, similar to a credit card, and you only pay interest on what you've actually borrowed.

HELOCs typically have a draw period, often around ten years, where you can borrow and repay repeatedly, followed by a repayment period where the balance gets paid off on a set schedule. Because it's backed by your home, rates are usually lower than a personal loan or credit card, but it also means the home is collateral, so it's worth borrowing with a clear plan in mind.

Common uses include home improvements, consolidating higher-interest debt, and covering large expenses without touching savings. It's a different tool than a cash-out refinance, since your original mortgage stays untouched and the HELOC sits alongside it as a second lien.