What is a Home Equity Line of Credit (HELOC)?

A Home Equity Line of Credit (HELOC) is specifically defined as a revolving line of credit that is secured against your home. This means that the amount available for borrowing is based on the equity you have built up in your home, which is the difference between its market value and the amount you owe on your mortgage. As a revolving line of credit, a HELOC allows you to borrow funds as needed, up to a certain limit, and you only pay interest on the amount you actually draw from it.

This flexibility makes a HELOC useful for a variety of financial needs, such as home improvements, debt consolidation, or unexpected expenses. Unlike traditional loans that provide a fixed sum, a HELOC enables borrowers to access funds in a way similar to using a credit card, making it adaptable to changing financial circumstances.

Options that describe other types of loans, such as those secured against a vehicle or personal loans with higher interest rates, do not relate to the nature of a HELOC. Additionally, the choice that refers to a mortgage without monthly payments does not align with how HELOCs function, as they typically require monthly interest payments during the draw period. Understanding these differentiations highlights why B accurately defines a HELOC.