Learn with confidence

How a HELOC works

A HELOC is credit secured by your home. Learn the difference between a credit limit, a draw and a repayment obligation.

A line is not the same as cash in your account

Your approved credit limit sets an upper boundary. The amount you actually draw becomes debt. Some plans require an initial draw or a minimum outstanding balance; do not assume every line lets you borrow nothing at opening.

Two periods to plan for

During a draw period, the agreement may allow borrowing and repayment. After it ends, new draws may stop and you may need to repay principal over a set period—or face a large payment. Ask for both the draw-period and repayment-period payment formulas.

A variable rate can change the payment

Many HELOCs use a published index plus a margin. A floor, cap, introductory period or fixed-rate option can change the calculation. Compare the written terms rather than the first advertised rate.

Your home is the collateral

If you cannot repay, you could lose your home. A lender may also freeze or reduce available credit under certain conditions, so unused credit is not a substitute for cash reserves.