HELOC

A home equity line of credit lets you borrow against the equity you’ve built in your home. You draw on it only when you need to.

It works more like a credit card than a mortgage. You’re approved for a limit, you take what you want when you want it, and you only pay interest on the balance you’re carrying. Your home secures the line, so the rate is usually lower than on a personal loan or a credit card.

How the two phases work

A HELOC has a draw period and a repayment period. They work very differently.

• The draw period, usually five to ten years, is when the line is open. You can borrow, pay it back and borrow again. Payments during this time are often interest only.
• The repayment period, usually ten to twenty years, starts when the draw period ends. The line closes and you pay back everything you owe, so the payment goes up. Sometimes by a lot.

Most HELOCs have a variable rate, so your payment moves with the market. That’s the tradeoff for the flexibility. Make sure you’re comfortable with it before you sign.

What people use one for

Renovations, paying off higher-interest debt, tuition, or just having money set aside before you need it. There’s no restriction on what you use it for.

Should you get a line of credit or do a cash-out refinance? It depends on your current rate, how much you need, and whether you need it all at once. A Barrett loan officer can price both and show you the difference.