A line of credit is revolving credit that lets you borrow up to a set limit, repay, and borrow again. Unlike a loan where you receive a lump sum, you draw funds as needed during the draw period. You only pay interest on what you borrow, not the full credit limit.

A HELOC uses your home equity as collateral. It has two phases: a draw period (5-10 years) where you access funds and make interest-only payments, and a repayment period (10-20 years) where you pay principal + interest. Because it's secured by your home, rates are lower than unsecured credit.

HELOC: Revolving credit, variable rate, draw as needed, interest-only during draw period. Home Equity Loan: Lump sum, fixed rate, fixed payments from day one. Choose HELOC for ongoing expenses; choose HE loan for one-time costs with predictable payments.

Typically 80-85% of your home's value minus your mortgage balance. Example: $400,000 home value × 80% = $320,000. Subtract $200,000 mortgage = $120,000 maximum HELOC. Some lenders go to 90% for excellent credit. Your credit score, income, and debt-to-income ratio also affect approval.

Yes, but only if funds are used to "buy, build, or substantially improve" your home (per IRS rules from Tax Cuts and Jobs Act). Interest on HELOCs used for other purposes (debt consolidation, education, etc.) is not deductible. Combined mortgage + HELOC debt limit for deduction is $750,000.

You can no longer access funds, and payments shift from interest-only to principal + interest (amortized). This typically causes significant payment increase. Plan ahead—either pay down balance before transition or budget for higher payments. Some lenders offer options to refinance or extend.

Yes, most lines of credit allow early payoff without penalty. Check your agreement for any prepayment penalties (rare for HELOCs, more common in some personal LOCs). Paying extra during the draw period reduces your balance and interest costs significantly.

Most LOCs are tied to Prime Rate (currently 8.50%). Your rate = Prime + Margin (e.g., Prime + 1% = 9.50%). When the Federal Reserve raises/lowers rates, Prime adjusts, and your rate changes—usually monthly. Rate caps limit maximum increases (e.g., 6% lifetime cap).

HELOC: Typically 680+ for best rates; some lenders accept 620+. Personal LOC: Usually 670+ required; best rates at 720+. Higher scores get lower margins above Prime Rate. Lenders also consider income, debt-to-income ratio, and (for HELOC) loan-to-value ratio.

Yes, lenders can freeze or reduce HELOCs if: home value drops significantly, your credit score declines, or you miss payments. During 2008-2009, many HELOCs were frozen. Before relying on a HELOC for emergencies, consider this risk. Personal LOCs can also be reduced for credit issues.