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2 min read

HELOC Explained: How to Make the Most of Your Home’s Equity

What is a HELOC? A Home Equity Line of Credit (HELOC) is a flexible way to borrow against the value of your home. Unlike a traditional loan that gives you a lump sum, a HELOC works more like a credit card—you have a revolving line of credit that you can draw from as needed, up to a set limit.

This means you can access funds as expenses arise, only paying interest on what you actually use. Whether you’re tackling home improvements, consolidating debt, or covering unexpected costs, a HELOC can be a smart financial tool.

How Does A HELOC Work?

A HELOC has two main phases:   
  1. The Draw Period – Typically lasting 10 years, during which you can borrow money as needed and often only make interest payments.
  2. The Repayment Period – Lasting 10-15 years, where you repay the principal and interest in regular installments.

During the draw period, funds are readily available when you need them. Once the repayment period begins, you can no longer withdraw, and you’ll start repaying what you borrowed.

HELOC vs. Home Equity Loan: What’s the Difference?

Many people confuse a HELOC with a home equity loan. While both let you borrow against your home’s equity, there’s a key difference:
  • HELOC = A revolving credit line where you can borrow as needed.
  • Home Equity Loan = A lump sum loan with fixed payments.

If you need flexibility, a HELOC is likely the better option. If you prefer predictable payments, a home equity loan might be a better fit.

Common Uses for a HELOC

A HELOC can be used for almost anything, but here are some of the most common and beneficial ways homeowners use them: 
  • Home Renovations – Fund remodeling projects that can increase your home’s value.
  • Debt Consolidation – Pay off high-interest debts like credit cards with a lower HELOC rate.
  • Emergency Fund – Have a financial safety net for unexpected expenses.
  • Education Costs – Cover tuition or education expenses at a lower rate than student loans.
  • Major Purchases – Buy appliances, furniture, or even fund a wedding or vacation.

What to Consider Before Getting a HELOC

Before opening a HELOC, ask yourself:
  • Do I have enough home equity? Many lenders require 15-20% equity in your home to qualify.
  • Can I afford the repayment period? After the draw period, payments increase as you start repaying the principal.
  • Is my income stable? Since a HELOC is secured by your home, you’ll want to be confident in your ability to repay it.
HELOC Best Practices
  • Borrow only what you need. Since HELOCs are flexible, avoid overborrowing just because you can.
  • Make more than the minimum payment. Paying down principal during the draw period can save you money in the long run.
  • Understand your rate structure. Many HELOCs have variable interest rates, which means your payments could fluctuate.

Is a HELOC Right for You?

A HELOC can be a powerful financial tool if used wisely. If you’re a homeowner looking for flexible, low-cost borrowing, it’s worth exploring.

Want to learn more about how a HELOC could benefit you? 

Apply Now
 
 
Intended for informational purposes only. To obtain an EFCU loan, you must have or open an EFCU membership and maintain with a minimum deposit of $25. Rates for this product are determined by an evaluation of applicant credit. Federally insured by NCUA. Equal Housing Lender. See credit union for details.