A Home Equity Line of Credit (HELOC) is a line of credit secured by your house that usually comes with low variable interest rates.

This means your home acts as collateral for your line of credit in case you are unable to make your monthly payments. Because your line of credit is secured, the APR you receive may be lower than unsecured loans or credit cards.

You can use a HELOC for a variety of things: debt consolidation, home improvements, major purchases (appliances, cars, RVs, boats, etc.), and many other expenses^***. It works much like a credit card. HELOCs give you flexibility in your monthly payments. You can even make interest-only payments during the draw period (up to the first 10 years of your HELOC)².

If you’ve built up equity in your home and you’d like to have flexible access to borrow a large sum of money, then a HELOC might be a great option for you.

HELOCs can be used for all kinds of expenses, such as ongoing home improvements or other investments, or can even be used as an emergency needs fund. Because they’re secured by your home, you may be able to access more money at lower interest rates than with a credit card or personal loan. Unlike with a HELoan, which is delivered as a single large lump sum up front, you only pay interest on what you draw from your HELOC, and you can even choose to make interest-only payments² for the first 10 years of your HELOC’s life.

A HELOC is a line of credit that you can draw on any time for a specific draw period (usually 10 years), and a HELoan is a loan that you take out in one lump sum upfront.

Both HELOCs and HELoans are financing options that allow you to borrow against equity that you’ve built in your home, which can offer access to more money with lower interest rates than personal loans or credits cards can offer. HELOCs typically have variable APRs, which means their interest rates are based on the Prime Rate as published in the Wall Street Journal and are likely to change over time. HELoans typically have fixed APRs, which means a single interest rate is in effect for the life of the loan. This means your monthly payments are consistent, which makes it easier to make a budget—and stick to it.

For more information on the differences between a HELOC and a HELoan and how you might choose if one of them is the best option for you, visit Prosper’s popular blog article that breaks it all down: HELOC vs HELoan: What’s the difference?

HELOCs typically have requirements about the minimum you need to draw at the beginning, but beyond that, you usually don’t ever need to draw HELOC funds that you don’t need^*.

Remember, you don’t pay interest on any HELOC funds you don’t borrow. Furthermore, you can choose to pay off your balance, accrued interest, and fees any time.

HELOC draw periods range in length, but on average are 10 years.

During a HELOC’s draw period, you can draw however much you need^* up to your maximum credit line, repay it, and draw again. You can also choose to make interest-only monthly payments² and wait until the repayment period to repay the principal you borrowed.

A home equity line of credit can be refinanced at any time, although there may be some limitations depending on where you live and your lender’s requirements.

What’s more, there’s usually no prepayment penalty for closing out a HELOC. One thing to bear in mind is that you only pay interest on the cash you borrow, so if you want you can pay your balance down to $0, you can keep the line open to use in the future if you need it at a later date.

You can use your HELOC for nearly any purpose^***.

HELOCs can be used for home improvements, debt consolidation, paying off a mortgage, major purchases (appliances, cars, RVs, boats, etc.), and even miscellaneous expenses.^*** For more on these popular uses of HELOCs, see Prosper’s ebook, 4 Ways to Use a Home Equity Line of Credit.

You’ll pay back a HELOC much the same way you do a credit card, but you can choose how much principal you want to repay during the draw period, or even make interest-only payments² during that time.

Once the repayment period begins, you must start paying back any outstanding balance plus interest. Your repayment period can last up to 20 years², although there’s usually no penalty for paying off your HELOC early.