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Guide

What Is a HELOC and How Can You Use One?

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What a HELOC is, how the draw and repayment periods work, and what a second mortgage puts at risk.

Published: 2026-10-12

Key takeaways

  • The CFPB defines a HELOC as an open-end line: you can draw more than once, up to a credit limit, during a draw period.
  • A draw period might last 10 years. After it ends, you generally cannot borrow, and repayment of the balance often runs 10 or 20 years, with a higher payment.
  • HELOCs usually have a variable rate, so the payment can change even when the balance does not. Some plans let you convert part of the balance to a fixed rate, often at a higher rate.
  • Because a HELOC is often a junior lien, it is paid after the first mortgage if the home is sold to cover the debts. The CFPB says second mortgages often carry higher rates for that reason.

Published: 2026-10-12

A home equity line of credit, or HELOC, is an open-end line of credit secured by your house. You borrow against home equity, repay, and can often borrow again, up to a limit set at the start.

Equity is the value of the home minus what you already owe on it. The line is usually a second mortgage if a first mortgage is still in place. It is not cash in a checking account, and falling behind can put the house at risk. If you are comparing this with replacing the first mortgage, read the HELOC versus cash-out refinance guide after this one.

How is a HELOC different from a home equity loan?

Both are common second mortgages. The Consumer Financial Protection Bureau (CFPB) splits them by how you receive the money.

A home equity loan is usually closed-end. You receive the amount upfront in one sum, and you do not draw again. The rate may be fixed or adjustable.

A HELOC is open-end. You draw, up to a maximum, more than once. As you pay the balance down, available credit can be replenished, similar to a card. The rate is usually adjustable, and the payment depends on what you currently owe.

The loan types guide sets both products next to first mortgages and other ways of borrowing against a house. A closed-end loan fits a one-time cost. A line fits costs that arrive in pieces.

What happens during the draw period?

During the draw period you can generally spend up to the credit limit. The CFPB uses 10 years as an example of how long that period can last. Draws often go out by special check or a card linked to the line.

Many plans ask only for a minimum payment in this phase, based on the current balance. That minimum may barely touch principal. Paying more is what restores room on the line.

Ask about fees before you open it. The CFPB notes setup fees on some plans, a minimum draw (its example is $300), a minimum balance you must keep, or a required first draw when the line opens.

The limit is not a promise that the full amount stays available. If the home's value drops sharply, the lender can stop additional draws. The lender can also freeze further draws if your finances change and the lender does not believe you can keep paying. Money already borrowed is still due.

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What changes when the draw period ends?

When the draw period ends, new borrowing stops and the repayment period begins. The lender may set a schedule to repay the full balance, often over 10 or 20 years. The CFPB says monthly payments are often much higher at that point. Some plans require the entire balance as soon as repayment begins. That balloon is a reason to read the note before you rely on the line for a long project.

HELOCs usually carry a variable rate, so the payment can change from month to month even if you do not draw more. Some plans let you convert some or all of the balance to a fixed rate. The CFPB says that fixed rate is usually higher than the variable rate and is more predictable.

Price the early minimum and the later repayment amount before you treat the line as household cash. The mortgage calculator can illustrate a fixed payment. A variable HELOC payment will not match that schedule exactly, which is why the higher case is worth running on your own.

What are you pledging, and what are people using the money for?

A second mortgage uses the house as collateral while another loan is still secured by the same house. If the home is sold to cover the debts, the second loan is paid second. If the sale does not cover both balances, the junior lender may not be paid in full. The CFPB says that position is why second mortgages often carry higher interest rates than first mortgages.

The risk to you is direct. The CFPB says that if you cannot repay a home equity loan or a HELOC, you could lose the home, because the equity is the collateral. The new payment also sits on top of the first mortgage.

People draw HELOCs for home projects, for bills that arrive over time, and sometimes to pay off other debts. On that last use, the CFPB's warning is specific. You are not really paying the old debts off. You are replacing them with a loan secured by the house. The rate may look lower because the lender has collateral. If you cannot repay, the house stands behind the new loan. Stretching a short car loan into a long housing payment can also mean more interest over a longer time.

A line you open "just in case" still has fees, a lien, and a payment that can rise. Compare the structure with a cash-out refinance if the question is which lien you want. Read the refinance guide if you are thinking about replacing the first mortgage instead.

If you are already struggling with the first mortgage, the CFPB says to talk with a housing counselor before taking on a HELOC or a home equity loan. The bureau's line for a HUD-approved counseling agency is (855) 411-2372.

If a line of credit matches the expense you have in mind, compare it with a cash-out refinance on the HELOC versus cash-out page and review the broader menu on the loan types guide.

A HELOC rate is usually variable, so the path of rates still matters. See Where Are Mortgage Rates Headed Next?.

This article is educational and is not a loan offer or financial advice.

Sources

Frequently asked questions

Is a HELOC a second mortgage?

Often, yes. With a first mortgage still in place, the HELOC is a junior lien and is paid after the first if the home is sold to cover the debts. A home equity loan is the other common second mortgage.

Can the lender cut off new draws?

Yes. The CFPB says a lender may stop further draws if the home's value falls sharply, or if your finances change and the lender doubts you can keep paying. Amounts already borrowed stay due.

Should I use a HELOC to pay off credit cards?

The CFPB's warning is that you are replacing unsecured debt with debt secured by the house. The rate may look lower. Missed payments can put the home at risk.

Does this site offer HELOCs?

No. Terms, fees, and rates come from lenders. Compare written disclosures, and read the HELOC versus cash-out refinance page if you are choosing between a second lien and a new first mortgage.