A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by the equity in your home, meaning your home acts as collateral for the loan

. Here's how it works:

• Borrowing Against Home Equity: You can borrow up to a certain credit limit based on the equity you have in your home. Typically, lenders allow you to borrow up to about 85% of your home's value minus what you owe on your mortgage

• Draw Period: During this initial phase, usually about 10 years, you can borrow money as needed up to your credit limit. You only pay interest on the amount you borrow, and principal payments are often optional during this time

• Repayment Period: After the draw period ends, you enter the repayment phase (often 20 years), where you can no longer borrow, and you must make payments on both principal and interest. Monthly payments usually increase because you are paying down the loan principal as well as interest

• Flexible Access: You can access funds through online transfers, checks, or a card linked to the HELOC account, similar to how you would use a credit card

• Interest Rates: HELOCs generally have variable interest rates based on an index (like the U.S. Prime Rate) plus a margin set by the lender. Some lenders offer options to convert part of the balance to a fixed rate to protect against rising interest rates

• Costs: There may be closing costs, annual fees, or early closure fees depending on the lender. Interest rates on HELOCs are often lower than unsecured loans or credit cards because the loan is secured by your home

• Risks: Since your home is collateral, failure to repay the HELOC can result in foreclosure. Also, borrowing reduces your home equity, which can affect your financial stability and limit future options if you want to sell your home

In summary, a HELOC works like a credit card secured by your home equity, allowing flexible borrowing and repayment, with interest charged only on the amount borrowed. It is useful for managing large or ongoing expenses but carries risks tied to your home's value and interest rate fluctuations