{"id":53461,"date":"2026-04-15T17:01:12","date_gmt":"2026-04-15T11:31:12","guid":{"rendered":"https:\/\/www.tatacapital.com\/blog\/?p=53461"},"modified":"2026-04-15T17:01:58","modified_gmt":"2026-04-15T11:31:58","slug":"what-is-a-home-equity-line-of-credit","status":"publish","type":"post","link":"https:\/\/www.tatacapital.com\/blog\/loan-for-home\/what-is-a-home-equity-line-of-credit\/","title":{"rendered":"Home Equity Line of Credit (HELOC) – Features, eligibility & how it works\u00a0"},"content":{"rendered":"\n

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Suppose you are facing a financial emergency and require urgent funds. You may consider applying for a personal loan, but the interest rates can be quite high. Using a credit card is another option, but the limit may not be enough. So, what can you do in such a situation?<\/p>\n\n\n\n

Now imagine if you could use the value of your home to access funds whenever needed, and pay interest only on the amount you actually use. Sounds illusory, right? But this is exactly what a Home Equity Line of Credit (HELOC) allows you to do.<\/p>\n\n\n\n

Also known as a line of credit loan, this flexible borrowing option can be extremely helpful during financial contingencies. In this blog, you will explore the HELOC meaning, how it works, eligibility, features, and more. Keep reading.<\/p>\n\n\n\n

What is a home equity line of credit?<\/strong><\/h2>\n\n\n\n

To understand what a home equity line of credit is, you must first learn the line of credit meaning. A line of credit is a revolving credit facility that allows you to withdraw funds as needed, up to a pre-determined limit. Interest is charged only on the amount you use, not on the entire credit limit.<\/p>\n\n\n\n

It is different from a traditional loan, where you receive a lump sum and pay interest on the entire amount. In a line of credit loan, you borrow only when required.<\/p>\n\n\n\n

When you use your home as collateral for a line of credit, it is known as a home equity line of credit. In such a case, the lender determines the credit limit based on your property\u2019s market value.<\/p>\n\n\n\n

HELOC vs home equity loan: Key differences explained<\/strong><\/h2>\n\n\n\n

A HELOC and a home equity loan<\/a> both use your housing property as collateral, but they work differently. A HELOC offers flexible access to funds, while a home equity loan allows you to borrow a lump sum. The table below depicts key differences between these two financial tools:<\/p>\n\n\n\n

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Feature<\/strong><\/td>HELOC<\/strong><\/td>Home Equity Loan<\/strong><\/td><\/tr>
Structure<\/td>Revolving credit facility<\/td>Lump sum loan<\/td><\/tr>
Interest<\/td>Charged only on the amount used<\/td>Charged on the full loan amount<\/td><\/tr>
Interest rate type<\/td>Usually floating<\/td>Usually fixed<\/td><\/tr>
Repayment style<\/td>Flexible during the draw period<\/td>Fixed EMIs<\/td><\/tr>
Flexibility<\/td>High<\/td>Low<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

How does a HELOC work?<\/strong><\/h2>\n\n\n\n

A home equity line of credit is a secured credit facility in which your house serves as collateral. When you apply for a HELOC, the lender evaluates your property\u2019s current market value to determine a credit limit. Based on the Loan-to-Value (LTV) ratio<\/a>, the lender then approves and sanctions a line of credit. You can borrow, repay, and then reuse the same limit within the draw period.<\/p>\n\n\n\n

For example, suppose your home\u2019s current market value is Rs. 60 lakhs and the lender\u2019s LTV ratio is 70%. It means that it may sanction you a home equity credit limit of Rs. 42 lakhs. You can withdraw funds from this limit as needed, repay, and then reuse the same limit.<\/p>\n\n\n\n

Draw period vs repayment period<\/strong><\/h2>\n\n\n\n

The draw period is an initial period during which you can withdraw funds from your home equity credit line. This period usually lasts about 10 years from the date of sanction. Once you repay the borrowed amount during the draw period, the entire credit limit becomes available for reuse. Some lenders even allow you to make interest-only payments during this period.<\/p>\n\n\n\n

After the draw period ends, you enter into the repayment period. You can no longer withdraw funds from your credit limit, and can only repay the outstanding amount in installments.<\/p>\n\n\n\n

How are HELOC interest rates calculated?<\/strong><\/h2>\n\n\n\n

In a home equity line of credit, interest is charged only on the amount you actually use, not on the approved credit limit. For example, if your sanctioned HELOC limit is Rs. 40 lakhs and you have borrowed only Rs. 5 lakhs, interest will be charged only on Rs. 5 lakhs, not on the remaining Rs. 35 lakhs.<\/p>\n\n\n\n

Most HELOCs have variable interest rates linked to a benchmark rate. It means the interest can change over time based on market conditions.<\/p>\n\n\n\n

Also,read – What Is The Difference Between Home Equity Loan Vs Mortgage Loan?<\/a><\/p>\n\n\n\n

How much can you borrow with a HELOC?<\/strong><\/h2>\n\n\n\n

The amount you can borrow through a home equity line of credit depends on a few key factors. The lender first evaluates your property through a formal valuation process. It appoints a professional valuer to assess factors such as location, property condition, age, market demand, and recent sale prices in the area. Based on this, the current market value of your home is determined.<\/p>\n\n\n\n

The lender then applies the LTV ratio to decide your borrowing limit. The LTV ratio is the percentage of your property\u2019s value that a lender can offer as a loan.<\/p>\n\n\n\n

Apart from this, lenders also consider your income, credit profile, and existing loans before finalizing the limit.<\/p>\n\n\n\n

Eligibility criteria for a home equity line of credit<\/strong><\/h2>\n\n\n\n

The basic criterion to qualify for a home equity line of credit is that you must own a housing property and have some home equity. However, that\u2019s not the only requirement. Lenders also consider the following factors before approving a HELOC application:<\/p>\n\n\n\n