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Home Equity Loans and HELOCs: Borrowing Against Your Home

Home equity can support a large expense, but borrowing against it creates another obligation secured by the place you live. A fixed loan and a revolving credit line handle payments, rates, and access to money differently. Compare the borrowing and repayment periods, fees, and circumstances in which a lender may change access to the line.

The questions below use selected Consumer Financial Protection Bureau guidance, adapted and organized by Fynoptic. Source links and the dates displayed by those sources are provided at the end.

What is a home equity line of credit (HELOC)?

A home equity line of credit (HELOC) is an “open-end” line of credit that allows you to borrow repeatedly against your home equity.

Tip

Before you borrow, find out What You Should Know About Home Equity Lines of Credit (HELOCs). Our booklet can help you understand how HELOCs work, shop around, and watch out for pitfalls.

A HELOC lets you borrow money using the available equity in your home, which is the value of your home minus the amount you owe on your mortgage. Only consider a HELOC if you’re confident you can keep up with the loan payments. If you fall behind or can’t repay the loan on schedule, you could lose your home.

Borrowing from a HELOC

If you get a HELOC, you can generally spend up to your credit limit anytime during the borrowing period, also called the “draw period.” The draw period could last 10 years, for example. Typically, you use special checks or a credit card to draw on your line of credit.

Ask your lender about fees and minimums

Lender can charge certain fees when you get a HELOC. Some plans also require you to borrow a minimum amount each time (for example, $300) or keep a minimum amount outstanding, while other plans require you to take an initial amount when the credit line is set up. You can make payments on your HELOC during the draw period, and many HELOCs have minimum monthly payments based on your current balance.

If the value of your home decreases significantly, your lender might decide not to allow you to take out additional credit under your HELOC plan, which may result in you not having access to as much money as you thought you would. The lender might also freeze your ability to take out additional funds if your financial circumstances change and your lender does not believe you will be able to make your payments.

Download our booklet to help you understand how HELOCs work, as well as how to shop around and watch out for pitfalls

Entering the repayment period

After the draw period ends, you stop being able to borrow from your HELOC and enter the “repayment period.” Your lender may set a schedule so that you repay the full balance, often over ten or 20 years. Monthly payments are often significantly higher once you enter repayment. In some cases, you may have to pay back the whole amount you borrowed as soon as the repayment period begins.

HELOCs usually have a variable interest rate, so your payments may change from month to month. Some HELOCs let you convert some or all of your balance from a variable rate to a fixed interest rate—the fixed rate is usually higher than the variable rate but is also more predictable.

What is a home equity loan?

A home equity loan (sometimes called a HEL) allows you to borrow money using the equity in your home as collateral.

Equity is the amount your property is currently worth, minus the amount of any existing mortgage on your property. You receive the money from a home equity loan as a lump sum. A home equity loan usually has a fixed interest rate–one that will not change. If you cannot pay back the HEL, the lender could foreclose on your home. If you are considering taking out a HEL to pay off your debts, you should explore alternatives with a credit counselor that do not potentially put your home at the risk of a forced sale. Moreover, home equity loans may have upfront fees and costs, so be sure to compare more than just your monthly payment when shopping around.

Before taking out a home equity loan to consolidate your debts, talk to a qualified credit counselor to help you weigh your options.

Tip

Be careful about borrowing against your home as part of an investment strategy. There is no such thing as a “risk-free” or “guaranteed” investment. You should carefully consider all your options before you borrow against your home to invest. All investments can lose value and that could put your home at risk if you cannot repay the loan later on.

Look for a non-profit credit counseling organization that can:

  • Advise you on managing your money and debts
  • Help you develop a budget
  • Give you free educational materials or workshops

Avoid firms that ask for big fees up-front or that make unrealistic promises–like restoring your credit or repaying your debts for pennies on the dollar.

Start your search at the National Foundation for Credit Counseling’s website or by calling (800) 388-2227. Once you’ve identified counselors near you, check with your local Better Business Bureau or state attorney general’s office to see if any of them has a history of complaints.

What is the difference between a Home Equity Loan and a Home Equity Line of Credit (HELOC)?

A home equity loan is a specific amount of money borrowed against the equity of your home. A Home Equity Line of Credit (HELOC) is a line of credit, like a credit card, except you are borrowing against the equity of your home. For both home equity loans and HELOCs, if you already have a mortgage these new loans would be considered second mortgages that you’d need to pay in addition to your first mortgage.

With a home equity loan, you receive the money you are borrowing in a lump sum payment, and you may have a fixed or adjustable interest rate. With a Home Equity Line of Credit (HELOC), you can borrow or draw money multiple times from an available maximum amount. Similar to a credit card, when you make payments on your HELOC the amount of available credit is replenished. HELOCs usually have adjustable interest rates and the payment will vary depending on the outstanding balance.

Download our booklet to help you understand how HELOCs work, as well as how to shop around and watch out for pitfalls.

If you are having trouble paying your mortgage, before taking out a home equity loan or home equity line of credit, talk to a housing counselor to see if there may be other options that make better financial sense for you. Call the CFPB at (855) 411-CFPB (2372) to be connected to a HUD-approved housing counseling agency today.

What fees can my lender charge if I take out a HELOC?

Before you take out a Home Equity Line of Credit (HELOC), be sure to read the documents carefully to see what fees your lender can charge you.

Tip

Before you borrow, find out What You Should Know About Home Equity Lines of Credit (HELOCs). Our booklet can help you understand how HELOCs work, shop around, and watch out for pitfalls.

Under some plans, lenders might charge you:

  • An application fee – a fee when you apply for a HELOC
  • Origination, appraisal, title, or other closing costs fees – fees when you open an account
  • An inactivity fee – a fee for not using your HELOC
  • An annual or membership fee – a fee each year you have the HELOC
  • A cancellation fee – a fee for terminating the HELOC early, usually within the first two or three years
  • A conversion fee – a fee for converting a portion of your balance to a fixed interest rate

I wanted to take out a Home Equity Line of Credit but my lender told me the terms have changed. What can I do?

When you apply for a HELOC, the lender must give you important information about the terms and costs of your HELOC. This information includes the length of the draw and repayment periods, fees and costs you may be charged by the lender, an estimate of fees you may be charged by third parties to close the HELOC (such as appraisal fees), an explanation of how your minimum payment is calculated, and information about how the annual percentage rate may change.

A creditor must refund all fees you paid if you tell the creditor that you do not want to open an account:

  • For any reason within three business days after you receive the application disclosures (as discussed above), or
  • Any time before your account is opened if any of the terms disclosed in the application disclosures change

If the home used to secure your HELOC is your principal dwelling, then you have three business days from the day you open your account or the day you receive the account-opening disclosures (whichever is later) to change your mind and cancel your HELOC. You can change your mind for any reason. You just have to inform the lender in writing within the three-day period that you have changed your mind. The lender must then return all of the fees, including any fees to third parties, that you paid to open your HELOC.

Sources and further reading

The CFPB source passages are U.S. government work in the public domain. Fynoptic has selected, organized, and adapted the material for this guide, including corrections identified through the additional sources listed above. Sources accessed October 27, 2026. This use does not imply agency endorsement or affiliation.

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