What Is a Home Equity Line of Credit?

A tool to use your home as collateral

Tunji Onigbanjo
2 min readJul 25, 2023
Photo by Scott Webb on Unsplash

A home equity line of credit (HELOC) is a type of loan that allows you to borrow money against the equity in your home, essentially using your home as collateral for a loan. The equity in your home is the difference between the appraised value of your home and the amount you owe on your mortgage.

HELOCs are similar to credit cards in that you can borrow money as you need it, up to a certain limit. However, HELOCs have variable interest rates, which means that the interest rate on your loan can go up or down over time. HELOCs can be a great way to finance home improvements, consolidate debt, or pay for unexpected expenses. However, it’s important to understand the terms of your HELOC before you borrow any money.

When you open a HELOC, you’ll be given a credit limit. This is the maximum amount of money you can borrow. You can borrow up to your credit limit, and you can repay the money as you need to. The interest rate on your HELOC will be variable, which means that it can go up or down over time. The interest rate is usually tied to the prime rate, which is the interest rate that banks charge their most creditworthy customers.

There are two phases to a HELOC: the draw period and the repayment period. During the draw period, you can borrow…