A home equity line of credit, also known as a HELOC, is a line of credit secured by your home that gives you a revolving credit line to use for large expenses or to consolidate higher-interest rate debt on other loans such as credit cards.

What is a home equity line of credit?

A home equity line of credit, or HELOC, is a second mortgage that gives you access to cash based on the value of your home. (It can also be a primary mortgage if you own your home outright.) You borrow against your equity, which is the home’s value minus the amount you owe on the primary mortgage. You can usually borrow up to 85% of your equity.

You can draw from a home equity line of credit and repay all or some of it monthly, somewhat like a credit card. Unlike a credit card, however, HELOCs are not intended for minor expenses.

When you’re shopping around for a loan, borrowing from the equity in your home will often get you the best rate.

With a HELOC, you’re borrowing against the available equity in your home and the house is used as collateral for the line of credit. As you repay your outstanding balance, the amount of available credit is replenished – much like a credit card. This means you can borrow against it again if you need to, and you can borrow as little or as much as you need throughout your draw period up to the credit limit you establish at closing. At the end of the draw period, the repayment period begins.