What does a home equity line of credit (HELOC) leverage?

A home equity line of credit (HELOC) leverages the equity in a borrower's home. Equity refers to the difference between the current market value of the home and the outstanding mortgage balance. Homeowners can tap into this equity through a HELOC, which provides flexible access to cash for various purposes, such as home improvements, debt consolidation, or other financial needs.

The structure of a HELOC allows borrowers to draw funds as needed, up to a predetermined credit limit based on their available equity, typically providing lower interest rates compared to unsecured loans. This makes leveraging home equity a popular option for those looking to finance significant expenses while utilizing the value they have already built in their property.

Other answers do not relate directly to the concept of a HELOC. For example, while a savings account may represent liquid assets, it does not contribute to the collateral for the HELOC. Likewise, total income can affect the borrower's ability to repay loans but is not the basis for the credit line. A credit score may influence approval and interest rates, but it does not serve as the underlying asset for leveraging a HELOC.