A HELOC (Home Equity Line of Credit) is a revolving line of credit that lets you borrow against the equity you have in your home. It works much like a credit card, allowing you to access funds as needed up to a set limit. Because a HELOC is secured by your home, the interest rates are generally lower than for other types of unsecured loans.
How a HELOC works
A HELOC is split into two phases: the draw period and the repayment period.
Draw period
- Duration: Typically lasts for 5 to 10 years.
- Borrowing: During this phase, you can withdraw funds as you need them, up to your credit limit. Your available credit is replenished as you pay down the balance.
- Payments: Your payments may be interest-only during the draw period, which can keep your initial payments low.