What is a home equity line of credit (HELOC)?

A home equity line of credit (HELOC) is indeed a loan that allows homeowners to borrow against their equity. This financial product enables homeowners to access funds based on the difference between their home's current market value and the outstanding balance on their mortgage.

HELOCs function similarly to a credit card, where the borrower is given a credit limit they can draw from as needed, rather than receiving a lump sum. This flexibility makes HELOCs an appealing option for individuals who may need funds for various purposes, such as home renovations, education expenses, or other financial needs, while leveraging the equity they have built up in their property.

The other options, while they may relate to home financing or improvement in some manner, do not capture the essence of what a HELOC is. A grant for home repairs does not require repayment, nor does it involve borrowing against equity. A fixed-rate mortgage is a different type of loan structure that does not allow for revolving credit based on equity, and a savings account for home improvement does not represent a borrowing mechanism. Thus, the nature of a HELOC as a line of credit backed by home equity makes it distinct and important in the context of real estate finance.