Guides / Mortgages and home
Home equity loans and HELOCs
Home equity is the difference between what your home is worth and what you owe. You can borrow against it, but your home becomes the collateral, so the stakes are high.
The key ideas
- Home equity loan
- A lump sum with a fixed rate and fixed payments, repaid over a set term.
- HELOC
- A home equity line of credit works like a credit card secured by your home. Rates are usually variable and payments can rise after the draw period ends.
- How much you can borrow
- Lenders typically limit total borrowing, including your first mortgage, to a percentage of your home's value.
- Good and poor uses
- Uses that add lasting value, like a needed repair, are different from funding everyday spending or vacations.
- Right to cancel
- For many home equity loans on your primary home you have three business days after closing to cancel without penalty.
Questions to ask yourself
- What happens to my payment when the HELOC draw period ends?
- Could I still make the payments if my income dropped?
- Is there a cheaper way to pay for this, like saving first?
Free help
- CFPB home equity resources
- Explanations of HELOCs and your rights at consumerfinance.gov.
This guide is general education for US households, based on how things typically work. Rules, rates and program details change and vary by lender and state. It is not individual financial, legal or tax advice, and it isn't an offer of credit. Pennies & More isn't paid by any lender or company mentioned here.