Like a home equity loan, a home equity line of credit (HELOC) is a loan that uses the equity in your home as collateral. However, this loan takes the form of a revolving line of credit instead of a lump sum. This kind of credit line offers greater flexibility because you have access to a pool of funds, and again, how you use it is up to you. It could help you for emergencies, debt consolidation, a home improvement project, or even day-to-day spending.
Payments toward your line of credit are flexible as well. Depending on your loan agreement, you can pay as little as just the interest on a HELOC, meaning that you don’t have a deadline on paying back what you actually borrowed. Lines of credit also come with variable interest rates that are much lower than the interest rates on credit cards.
Credit lines are like credit cards in that you only pay interest and make payments on what you use. For example, if you’re approved for a $25,000 HELOC but only borrow $5,000, then you’ll only need to pay interest on that $5,000.