What is a Home Equity Line of Credit (HELOC)?

A home equity line of credit – or HELOC – is a revolving line of credit secured by your home. Since your home is usually your largest asset, you can use the equity you’ve built as collateral to borrow. How much equity you have in your home is the difference between your home’s value and the amount you owe on the mortgage.

How Does a HELOC work?

With a HELOC, you have the flexibility to use how much you need, when you need it. Like a credit card, you have access to a certain amount of funds to borrow and pay back, and you only pay interest on the amount you use. The interest you pay on your HELOC may even be tax deductible (consult your tax advisor). As you pay down the balance of your HELOC, you can reuse the available funds in the future without having to reapply.

When Does a HELOC Make Sense?

HELOCs are a great fit for home upgrades and renovations, since the improvements you make may increase the value of your home. Consolidating debt can be another smart use. Combining high-interest balances – usually in the form of credit cards – into one monthly payment can help you pay off unwanted debt sooner.

Use our debt consolidation calculator to see if a HELOC could help you save.

Before applying, consider how much money you need and how you will use it. HELOCs are a convenient and flexible way to pay, but without a plan you might be tempted to overspend.