HELOC Explained

What Is a HELOC?

A Home Equity Line of Credit (HELOC) is a revolving credit facility secured by the equity in your property. Unlike a closed-end second mortgage, a HELOC gives you a credit limit you can draw against, repay, and draw again — much like a credit card, but at a fraction of the cost because the line is collateralized.

The Key Terms to Understand

• Draw period — the window (often 10 years) during which you can access the line.
• Repayment period — after the draw period ends, the balance amortizes.
• Loan-to-value (LTV) — most lenders cap combined LTV (first mortgage + HELOC) at 80–85%.
• Variable vs. fixed — many HELOCs float, though fixed-rate conversion options are increasingly common.

When a HELOC Fits

A HELOC is best when you have recurring, project-based, or seasonal capital needs and want to pay interest only on what you use. Investors use them to fund down payments on additional properties; business owners use them to smooth cash flow or finance equipment.

Structuring It Well

1. Know your position ceiling. Lenders price to combined LTV and credit profile — pull comparables before applying.
2. Watch the index. Many HELOCs reference prime; understand how your rate moves.
3. Plan the exit. A HELOC is a tool, not a permanent solution — know whether you'll pay it down from cash flow, a refinance, or an asset sale.

The Bottom Line

Used deliberately, a HELOC is one of the lowest-cost, most flexible forms of leverage available to a property owner. The danger comes from using it as a permanent substitute for income.