HELOC (Home Equity Line of Credit)

A HELOC turns your home equity into a credit line rather than a lump sum. You are approved for a maximum, draw only what you need, and pay interest solely on the balance outstanding — closer to a credit card than to a mortgage in how it behaves day to day.

It runs in two phases. During the draw period, commonly ten years, you can borrow freely and payments are often interest-only. Then the repayment period begins, the line closes to new draws, and you amortize the balance over the remaining term. The payment jump at that transition is the single most underestimated feature of the product.

Rates are usually variable and tied to the prime rate, so the cost moves with Federal Reserve policy. That is the key difference from a home equity loan, which advances a fixed sum at a fixed rate — the HELOC trades certainty for flexibility.

The collateral is your house. That is what makes the rate a fraction of what unsecured credit costs, and it is also the entire risk: a balance you cannot service does not merely damage your credit, it puts the home in foreclosure. Consolidating card debt this way converts a survivable problem into a secured one.

Lenders size the line against a combined loan-to-value limit, typically 80% to 85% of the home's appraised value including the existing mortgage. They can also freeze or reduce an unused line if property values fall, which is exactly when borrowers tend to want it.