A home equity line of credit lets you borrow, repay, and potentially borrow again during a defined draw period, subject to the agreement. Your home secures the debt. The payment and borrowing access can change over time, so read both the draw and repayment terms.
A low draw-period payment can hide a much larger repayment obligation.
Separate today’s payment from tomorrow’s
Some lines permit interest-only payments during the draw period. Those payments do not reduce the principal unless you pay extra. After the draw period, repayment terms can require principal payments and create a substantially larger monthly obligation.
Ask how the rate can change
Many HELOCs use a variable rate based on an index plus a margin. Review caps, floors, introductory terms, annual fees, and any fixed-rate conversion option. Model a higher-rate scenario, not just the introductory payment.
Use borrowing capacity carefully
The credit limit is not a savings account. Availability can be subject to the lender’s terms and property or financial conditions. Compare a HELOC with a fixed second mortgage or another funding source based on the amount, timing, and repayment plan.
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CFPB: Home equity lines of credit booklet ↗General education, not an approval or personalized recommendation. Loan terms and eligibility vary. Our editorial standards.