Home Equity Line of Credit (HELOC) Definition


A home equity line of credit (HELOC) is credit extended against the equity in the house as collateral. A HELOC is used as a credit card - only with a larger limit. For example, the lender may extend $30,000 on a HELOC and the borrower will be allowed to draw cash within this limit for a draw period of, say, 5 to 20 years.

For the time of the HELOC draw period you are required to pay interest only over the amount that you used. Any additional payment will go against the principal.

After the draw period is over, the home equity line of credit has to be repaid - either in a balloon payment, or according a repayment plan.

HELLOCs have become a popular loan choice. HELOC interest is tax-deductible in most states and this makes home equity lines of credit more preferable than a second mortgage. However, a home equity line of credit is still a loan taken against your house, so if you default on heloc requirements, you may have to deal with foreclosure.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
Was this Mortgage QnA helpful?
Not at all
  • Currently 3/5 Stars
  • 1
  • 2
  • 3
  • 4
  • 5
Add to this Answer

Mortgage QnA is not a common forum. We have special rules:

  • Post no questions here. To ask a question, click the Ask a Question link
  • We will not publish answers that include any form of advertising
  • Add your answer only if it will contrubute to the quality of this Mortgage QnA and help future readers
If you have trouble reading the code, click on the code itself to generate a new random code. Verification Code Above:
Bookmark and share this QnA: