What is a home equity line of credit (HELOC)?

A HELOC lets you borrow money using the available equity in your home, which is the value of your home minus the amount you owe on your mortgage. Only consider a HELOC if you’re confident you can keep up with the loan payments. If you fall behind or can’t repay the loan on schedule, you could lose your home.

Borrowing from a HELOC

If you get a HELOC, you can generally spend up to your credit limit anytime during the borrowing period, also called the “draw period.” The draw period could last 10 years, for example. Typically, you use special checks or a credit card to draw on your line of credit.

Ask your lender about fees and minimums

Lender can charge certain fees when you get a HELOC. Some plans also require you to borrow a minimum amount each time (for example, $300) or keep a minimum amount outstanding, while other plans require you to take an initial amount when the credit line is set up. You can make payments on your HELOC during the draw period, and many HELOCs have minimum monthly payments based on your current balance.

If the value of your home decreases significantly, your lender might decide not to allow you to take out additional credit under your HELOC plan, which may result in you not having access to as much money as you thought you would. The lender might also freeze your ability to take out additional funds if your financial circumstances change and your lender does not believe you will be able to make your payments.

Download our booklet to help you understand how HELOCs work, as well as how to shop around and watch out for pitfalls

Entering the repayment period

After the draw period ends, you stop being able to borrow from your HELOC and enter the “repayment period.” Your lender may set a schedule so that you repay the full balance, often over ten or 20 years. Monthly payments are often significantly higher once you enter repayment. In some cases, you may have to pay back the whole amount you borrowed as soon as the repayment period begins.

HELOCs usually have a variable interest rate, so your payments may change from month to month. Some HELOCs let you convert some or all of your balance from a variable rate to a fixed interest rate—the fixed rate is usually higher than the variable rate but is also more predictable.