A HELOC is a revolving credit line secured by your home's equity. You borrow what you need, repay it, and borrow again — up to your limit — during the draw period. Interest is typically variable and only charged on the outstanding balance.
A home equity line of credit (HELOC) lets you borrow against the equity you've built in your home — the difference between your home's current market value and your remaining mortgage balance. Unlike a home equity loan (which is a lump sum), a HELOC works like a credit card: you have a set credit limit, you draw from it as needed, and you only pay interest on what you've borrowed. The CFPB explains HELOCs as a common but risk-bearing type of second mortgage.
HELOCs typically have two phases. During the draw period (often 10 years), you can borrow and repay repeatedly. Many lenders require interest-only payments during this phase. At the end of the draw period, the line closes and you enter the repayment period (often 10–20 years), during which you pay back both principal and interest. Your monthly payment can jump significantly at this transition — a risk worth planning for.
Lenders typically allow you to borrow up to 80–85% of your home's appraised value, minus what you still owe on your primary mortgage. Example: $400,000 home value × 85% = $340,000 maximum equity base, minus $250,000 remaining mortgage = $90,000 potential HELOC limit. Your credit score, income, and debt-to-income ratio also factor into approval and the specific limit offered.
Because your home is the collateral, missed payments can put your home at risk of foreclosure. Variable rates mean payments can increase if benchmark rates rise. The CFPB warns consumers to understand all terms before opening a HELOC, including what happens at the end of the draw period and whether the lender can freeze or reduce the line if your home's value falls.