A HELOC works like a credit card secured by the home. During the draw period (often 10 years) the borrower can draw, repay and re-draw, paying interest only on the outstanding balance. In the repayment period (often 20 years) the line freezes and the borrower amortises the balance.
HELOCs are popular in the US for renovations, debt consolidation and emergency reserves. Rates are usually prime plus a margin, exposing borrowers to interest-rate risk. Missing payments can trigger foreclosure on the primary residence.
Beispiel
A US homeowner with USD 400k of equity opens a USD 100k HELOC; they draw USD 30k for a kitchen renovation and pay variable-rate interest on the USD 30k while the remaining USD 70k stays available for future needs.