What is a HELOC? The Definitive Beginner's Guide

Your Home is Your Bank

For most homeowners, their house is their biggest bank account—they just can't swipe a debit card to access it. A Home Equity Line of Credit (HELOC) changes that.

A HELOC is a revolving line of credit secured by your home. Think of it like a giant credit card. You are given a credit limit (e.g., $50,000) based on how much equity you have.

Key Features of a HELOC

• Revolving: You can borrow money, pay it back, and borrow it again, as many times as you want.
• Variable Rate: The interest rate fluctuates with the Prime Rate.
• Interest-Only (Usually): For the first 10 years, you are often only required to pay the interest, making monthly payments very low.

The Two Phases of a HELOC

1. The Draw Period (Years 1-10): This is the spending phase. You can withdraw funds using checks or a card. You only pay interest on what you use.
2. The Repayment Period (Years 11-30): The line of credit closes. You can no longer borrow. Your monthly payment increases because you must now pay back the principal plus interest.

Is a HELOC Right for You?

HELOCs are best for ongoing projects where you don't know the exact cost upfront (like a renovation) or for establishing an emergency safety net.