HELOC (Home Equity Line of Credit)

What Is a Home Equity Line of Credit, or HELOC?

A home equity line of credit lets you borrow against your home's value to access cash as needed.

 

What is a home equity line of credit?

A home equity line of credit, or HELOC, is a second mortgage that gives you access to cash based on the value of your home. (It can also be a primary mortgage if you own your home outright.) You borrow against your equity, which is the home’s value minus the amount you owe on the primary mortgage. You can usually borrow up to 85% of your equity, though this varies by lender.

You can draw from a home equity line of credit and repay all or some of it monthly, somewhat like a credit card. Unlike a credit card, however, HELOCs are not intended for minor expenses.

When you’re shopping around for a loan, borrowing from the equity in your home will often get you the best rate.

Key takeaways

  • A HELOC allows you to borrow cash from the value of your home — preferably for wealth-building expenditures, such as home improvements. 

  • Most HELOC lenders will let you borrow up to 85% of the value of your home (minus what you owe), though some have higher or lower limits.

  • You typically have 10 years to withdraw cash from a home equity line of credit, while paying back only interest, and then 20 more years to pay back your principal plus interest at a variable rate.

  • In order to qualify, lenders usually want you to have a credit score over 620, a debt-to-income ratio below 40% and equity of at least 15%.