Sometimes you have financing needs that can't be handled with a credit card—debt consolidation, home improvements, medical expenses, or education expenses, to name a few. You can tap into your home's equity as a source of funds for those more significant expenses. Because the line of credit is secured by the money you've paid into your home mortgage, you can often borrow larger amounts.
With a HELOC, the lender establishes a maximum credit line from which you can borrow as long as you have available credit and you're still in the draw period. The draw period is a timeframe that some lenders set for making purchases against your line of credit.1 During the draw period, you may be required to pay only the interest or a minimum payment of interest and principal.
HELOCs often have lower interest rates than other types of loans, allowing you to minimize your financing costs. However, the APR may be variable, which means it can fluctuate from month to month based on an underlying market rate.
During the draw period, let's say the first ten years, you can borrow as much as you need, and you'll only have to make interest payments. You can also pay down your balance to free up additional credit for later. Once the draw period expires, you'll enter the repayment period, a fixed 20 years, for instance, and won't be able to borrow from your HELOC.