 TITLE: How Does a HELOC Affect Your Credit Score? CONTENT: What Is a HELOC?\n----------------\nA HELOC is a revolving line of credit that allows you to borrow against the equity in your home. The amount you can borrow is determined by the assessed value of your home, minus the remaining balance on your mortgage. And you can use the funds as you see fit.\nMost lenders cap HELOCs at 60% to 85% of the home's value. They will also evaluate other factors, including your creditworthiness, to determine the line of credit. To illustrate, if your home is currently worth $420,000 and the outstanding balance on your mortgage is $150,000, you have $270,000 in home equity. In this case, the lender may offer you a HELOC of up to $229,500, assuming you meet other qualifying criteria.\nHELOCs operate similar to credit cards: You can borrow as much as you need up to your limit. Unlike credit cards, HELOCs have a set \"draw period,\" typically 10 years, during which you can access funds. During that time you'll make interest-only monthly payments on what you borrow, though you can usually add extra principal to your payments. When the draw period ends, the lender will generally spread the principal payments over 20 years, or you can refinance the loan.\nHELOCs are not the same as home equity loans, however. While a home equity loan is also based on the equity you've built in your home, it is an installment loan rather than a revolving line of credit. This means the lender disburses all the funds at once, and you must repay them over the loan term. Home equity loans also typically have a fixed interest rate, but the rate on HELOCs are usually variable. END