HELOC Explained: How a Home Equity Line of Credit Works

If you own a home and have built up equity, a HELOC (Home Equity Line of Credit) gives you access to that equity at relatively low interest rates. But it also puts your home on the line. Here's everything you need to know before opening one.

What Is a HELOC?

A HELOC is a revolving line of credit secured by your home equity. It works like a credit card — you have a credit limit, you borrow what you need, repay it, and borrow again. Most HELOCs have a 10-year draw period (when you can borrow) followed by a 20-year repayment period.

How Much Can You Borrow?

Most lenders let you borrow up to 80–85% of your home's appraised value, minus what you still owe on your mortgage. Example: home worth $400,000, mortgage balance $200,000 → maximum HELOC of $120,000–$140,000.

HELOC vs Home Equity Loan

• HELOC: Variable rate, flexible — borrow only what you need, when you need it. Good for ongoing expenses or emergencies.
• Home equity loan: Fixed rate, lump sum — get all the money upfront with predictable payments. Good for one-time large expenses like a renovation.

Good Uses for a HELOC

• Home improvements that increase property value
• Consolidating high-interest debt (only if you have strong discipline)
• Major medical expenses
• Business investment with clear ROI

The Risks

A HELOC is secured by your home. If you can't repay, the lender can foreclose. Variable rates mean your payment can rise significantly if interest rates increase. Many people treat a HELOC as 'extra money' and spend it on depreciating expenses — a serious financial mistake.