Home Equity Line of Credit (HELOC)

A Home Equity Line of Credit (HELOC) is a form of open-end credit secured by the borrower’s equity in real property.

• Revolving line of credit
• Secured by a deed of trust or mortgage
• Credit limit based on available equity
• Interest paid only on the amount borrowed
• Typically has draw and repayment periods

• Borrower is approved for a maximum credit limit
• Funds may be drawn as needed during the draw period
• Balance can increase or decrease
• After draw period, repayment begins

• HELOC
  • Open-end credit
  • Variable interest rate
  • Reusable funds

• Home Equity Loan
  • Closed-end
  • Fixed loan amount
  • Fixed payment schedule

• Often recorded as a second trust deed
• Subordinate to the first mortgage or deed of trust

• Subject to TILA and Regulation Z
• Includes right of rescission (3 business days) for owner-occupied residences

• HELOC = open-end mortgage
• Balance may increase over time
• Interest applies only to amounts actually borrowed