Home Equity Lines of Credit (HELOCs) are considered second mortgages or second liens that allow one to borrower against the equity in their home. These loans are ideal when a borrower needs to access equity in their home but does not want to touch their first mortgage because it has a low fixed interest rate. You can think of a HELOC in the same way as a credit card. You apply, the bank approves you for a certain credit limit, and you have access to use it whenever you need.

For example, if you get approval for a $200,000 HELOC, you do not have to make any payments until you actually draw on that money. Most HELOCs have a defined “draw period” (usually the first 10 years) which you are able to access the money. During this period, you can draw on the money as many times as you’d like and may be able to make interest only payments.

After the “draw period,” you will be required to pay back any outstanding principal that you borrowed, over an additional 10-20 years.

Some HELOCs also require an “initial draw amount” at the time you apply for the HELOC, so you should speak to your lender about the specific intricacies of each HELOC program. HELOC rates and terms can vary greatly from lender to lender.