A HELOC or home equity line of credit is a revolving loan that borrows against the equity in your home. A home equity line of credit allows homeowners to draw against a sum of cash in increments, which will deplete the available funds. These funds will then be made available again as the homeowner makes payments, much like a credit card account. You pledge your home as collateral against the loan.

Home Equity Line of Credit

A home equity line of credit is a loan that allows homeowners to borrow against the equity in their home to pay down more expensive debt, such as credit cards or car loans.

Collateral for a HELOC

Homeowners pledge an interest in their homes as security against the default of the loan, just like a traditional mortgage. And, like a traditional mortgage, if you are unable to make your payments, the lender can foreclose on the loan and take possession of the home and sell it in order to recoup losses.

Benefits of HELOCs

The benefit of home equity lines of credit is that the homeowner can borrow substantial amounts of money, depending on how much their home is worth against how much they owe, at a less expensive interest rate than most other loans available to borrowers.

Home Equity Loan

Another type of loan that works like a hybrid between a traditional mortgage and a home equity line of credit is a home equity loan or second mortgage. This type of loan allows the homeowner to borrow cash in one lump sum against the equity in their home, however, instead of a revolving line of credit, this loan is an installment loan. The money is not made available again after payments are made.

Defaulting

For all of these loans, the collateral is your home. Defaulting will result in the loss of your home.

Source:

FTC.gov:Home Equity Lines of Credit