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

A home equity line of credit (HELOC) is best defined as a revolving line of credit secured by the equity in a borrower’s home. This means that the amount you can borrow is based on the value of your home minus any outstanding mortgage balances. With a HELOC, homeowners have the flexibility to access funds as needed, up to a certain limit, and they only pay interest on the amount they actually use, rather than the total credit limit. This feature allows for ongoing borrowing and repayment, making it a versatile financial tool for homeowners who want to leverage the value of their property.

In contrast, the other options provide definitions that do not accurately depict a HELOC. A fixed-rate loan issued based on the home’s market value refers to a conventional mortgage, which is more structured and involves a predetermined repayment schedule. A type of mortgage that requires no down payment is typically associated with specific loan programs, such as VA loans, and does not encompass the revolving credit nature of a HELOC. Lastly, while HELOCs can certainly be used for home improvement projects among other purposes like debt consolidation or education expenses, they are not limited to that specific use. Therefore, the description of a HELOC as a revolving line of credit secured by home equity