Casa Academy

Reviewed by Casa Academy and updated July 29, 2026 using the current DBPR checklist and Pearson VUE scheduling guidance.

Home Equity Line of Credit

A home equity line of credit (HELOC) is a revolving second-lien loan secured by the owner's home equity, allowing draw and repayment periods with variable interest on outstanding balances, often used for renovations or debt consolidation.

Exam context

Identify HELOC as revolving equity-backed credit, not a purchase money first mortgage. Closed-end second mortgages disburse a lump sum with fixed payments unlike flexible draws.

Revolving structure

During the draw period borrowers access funds up to an approved limit, paying interest on amounts used. Minimum payments may be interest-only initially. Repayment phase amortizes remaining balance over a fixed term. Lenders freeze or reduce lines if property value falls or payments default.

Risk and priority

HELOCs sit behind the first mortgage in lien priority. Foreclosure pays senior liens first; HELOC lenders may pursue deficiency if permitted. Agents should caution that tapping equity reduces net proceeds at sale and can increase default risk if rates rise.

Examples

  • Renovation draws

    An owner with $200,000 equity opens a $60,000 HELOC, drawing $15,000 for a kitchen remodel and repaying it before drawing again for a roof project.

  • Rate adjustment

    A HELOC tied to prime rises from 7% to 9%, increasing monthly interest on the outstanding balance during the draw period unless the borrower converts to a fixed repayment segment.

Keep studying

Practice home equity line of credit (heloc) questionsEnroll in pre-licensing

Related terms

  • EquityHome value minus liens that collateralizes a HELOC.
  • Alienation clauseDue-on-sale language affecting junior liens at transfer.

Related resources

Sources