Home Equity Line of Credit (HELOC)
A home equity line of credit (HELOC) lets you borrow against your home’s equity as you need it—like a credit card secured by your house, often with lower rates.
HELOC stands for home equity line of credit. It’s a revolving line of credit secured by your home. You get a credit limit based on your equity (home value minus what you owe). You draw only what you need, when you need it, and pay interest on the amount you’ve drawn—not the full line. Many HELOCs have variable rates tied to a benchmark like the prime rate.
What Is a Line of Credit?
A line of credit is like a bank account that works like a credit card. The bank gives you a credit limit—a maximum you can borrow. You don’t get a lump sum deposited once; instead, you “draw” (borrow) when you need money, up to that limit. You pay interest only on the amount you’ve actually drawn, not on the full line. As you repay, that amount becomes available to borrow again. So it’s revolving: use it, pay it down, use it again. A credit card is a line of credit (unsecured). A HELOC is a line of credit secured by your home—so the limit is tied to your equity and rates are often lower.
That’s different from a home equity loan, where you receive one lump sum upfront and repay it in fixed installments. With a HELOC, you have a line you tap as needed.
Why It Matters
A HELOC gives you flexibility: you don’t have to borrow a lump sum upfront. That can suit ongoing projects, unpredictable costs, or when you’re not sure how much you’ll need. Because it’s secured by your home, rates are often lower than credit cards or other unsecured lines—but your home is at risk if you can’t keep up with payments.
How a HELOC Works
After approval, you get a draw period (often 5–10 years) when you can take advances up to your credit limit. You pay interest—and sometimes minimum principal—on the balance. When the draw period ends, you typically enter repayment: you can no longer draw, and you pay down the balance over a set term. Some lenders let you convert drawn amounts to a fixed rate.
HELOCs are often quicker and simpler than a full mortgage or home equity loan—many don’t require a full appraisal. You have a line you control: draw when you need it, without a new application each time. That can work well for business owners, renovations in stages, or variable cash needs.
HELOC vs Other Lines of Credit
HELOCs are one kind of line of credit. Others include credit cards, business lines of credit, and personal lines. The table below uses representative average rates and typical balances. Actual rates depend on lender, credit score, income, and (for HELOCs) equity and combined loan-to-value. "Good" credit is roughly 720+; "fair" is roughly 660–719.
| Product | Type | Typical APR / rate range | Typical balance / amount | Credit context |
|---|---|---|---|---|
| HELOC | Secured (home) | ~7–9% variable (prime + spread) | ~$50,000–$100,000 draw | Best rates often 720+; many lenders 660+ |
| Business line of credit | Secured or unsecured | ~8–12% (secured) to ~10–16% (unsecured) | ~$50,000–$100,000+ for established businesses | Revenue, time in business, and credit matter |
| Credit card | Unsecured | ~18–27% APR (varies by score) | ~$6,000 average balance | Excellent 720+: ~17–21%; fair: ~24–27% |
| Business credit card | Unsecured | ~20–25% APR typical | Varies widely by business size | Personal/business credit both factor in |
HELOCs are secured by your home, so lenders often offer lower rates than unsecured lines like credit cards—but your home is collateral. Borrowing at 8% vs 22% on $30,000 over five years can mean a difference of thousands in interest. For larger, planned one-time amounts, a home equity loan (lump sum, fixed rate) may be simpler.
When a HELOC Makes Sense
- You need flexibility—ongoing or unpredictable expenses, or you’re not sure of the total amount.
- You want a lower rate than unsecured options (e.g. credit cards) and have enough equity.
- You prefer to pay interest only on what you’ve actually borrowed, not a large lump sum.
A HELOC is less ideal when you know the exact amount and want one fixed payment—a home equity loan may be simpler. It’s also not a good fit if you’re unsure you can keep up with payments, since your home secures the line.
Quick Takeaway
A home equity line of credit (HELOC) is revolving credit secured by your home—like a bank account that works like a credit card, with a limit tied to your equity. You draw as needed, pay interest on the balance, and often get lower rates than unsecured lines like credit cards. Compare HELOC rates and read about home equity loans if you prefer a lump sum.