A HELOC (Home Equity Line of Credit) works like a credit card secured by your home. You can draw, repay, and redraw during the draw period (typically 10 years), then repay the balance over the repayment period.
HELOC structure
- Draw period: typically 5–10 years; you can borrow up to your limit; minimum payments are often interest-only
- Repayment period: typically 10–20 years; no new draws; repay principal + interest
- Variable rate: most HELOCs use prime rate + margin (rate changes monthly)
HELOC vs home equity loan
- HELOC: flexible draws, variable rate — best for ongoing expenses or uncertain amounts
- Home equity loan: lump sum, fixed rate — best for known, one-time expenses
Risks to understand
- Your home is collateral — missing payments risks foreclosure
- Variable rate means payment can increase if rates rise
- "Payment shock" when draw period ends and full amortization begins