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

By Kristi Waterworth – Updated Jul 2, 2025 at 11:34 PM

Key Points

HELOCs allow flexible withdrawals similar to credit cards during the initial draw period.
HELOC interest rates are usually variable, potentially increasing repayment costs.
Unlike HELOCs, home equity loans provide a one-time, lump sum with a fixed repayment.

If you've been considering tapping your home equity or you regularly invest in banking stocks, you've probably come across the term "HELOC," or home equity line of credit. But just what is a home equity line of credit, and what makes it different from other types of home loans?

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Home equity line of credit documents on a table. — Image source: Getty Images.

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During the draw period, you can use your home equity just like a credit card, making charges and paying the balance down as you choose. But once the draw period is over, the amount of debt you owe is set, and you begin the repayment period, where all you can do is pay on the loan, just like a typical mortgage.

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Home Equity

The value of your property minus any outstanding mortgage or loans against it, representing your financial stake in the home.

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A HELOC's draw period often requires that homeowners merely pay interest payments; sometimes, flexible payment options are available. So, people can be lulled into a false sense of security about their ability to repay the loan. Although they must be qualified to borrow the money, a lot can happen to your finances in five to 10 years, potentially making that full payment wholly untenable, especially with larger-than-planned lines of credit.

HELOCs also tend to have variable interest rates (fixed-rate HELOCs are available, but not every bank offers them), further compounding the problem. So, before you agree to a HELOC, make sure you really understand what you'll be paying in 10 years, and be sure your financial house is in order.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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Kristi Waterworth has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Peloton Interactive. The Motley Fool has a disclosure policy.