What Is a Home Equity Line of Credit (HELOC)?

A home equity line of credit, (a "HELOC"), is a unique type of mortgage that functions as a line of credit. Like a typical mortgage, a HELOC is secured by your property. A HELOC provides a revolving line of credit rather than a fixed loan amount, allowing you to use only the amount of credit that you need without paying interest on the full amount extended.

For example, in a standard mortgage, a borrower might be loaned $200,000 by a lender, which is paid to the borrower in full once the mortgage is closed. Typically this amount is used to pay for the property mortgaged to secure the loan. In contrast, a HELOC might provide the borrower with the promise of up to $200,000, to be offered by the lender, in an amount and at a time chosen by the borrower. A HELOC can be drawn on by using a check, a credit card, or by other means.

HELOCs are typically second mortgages, and used to provide funds for needs that arise after the home has been purchased, such as for making improvements or repairs to the home, or paying off other debts such as credit cards or college tuition. In some cases, a HELOC can be used to refinance an existing, initial mortgage.

A HELOC often has a lower interest rate than other types of loans, and payments on the interest may be tax deductible.