A simple guide to Home Equity Lines of Credit
A Home Equity Line of Credit (HELOC) is a flexible way for homeowners to borrow money using the equity they’ve built up in their property. Unlike a fixed homeowner loan, a HELOC works like a revolving credit line — you can borrow, repay, and borrow again within your approved limit.
What is a HELOC?
A HELOC is a secured credit line backed by your home. Lenders calculate how much you can borrow based on the value of your property and the amount of your mortgage still outstanding. You only pay interest and monthly repayments on the amount you draw, not the full approved limit.
For example, if your home is worth £500,000 and you owe £300,000 on your mortgage, you may have £200,000 in equity. You could access a portion of that equity through a HELOC.
How a HELOC works: the basics
A HELOC typically has two phases: the flexible draw period and the repayment fixed period.
- Flexible draw period: You can withdraw funds as needed, repay, and draw again, up to your credit limit . Selina Finance offers this flexible period for 2–5 years. You only pay interest and repayments on what you use during this period.
- Fixed period: Once the flexible draw period ends, you can no longer withdraw funds and you make fixed repayments over the remaining term of 5–30 years.
Think of it like a flexible loan that adjusts to your needs. It’s ideal for home improvements, paying for school fees, buy-to-let or managing other large expenses.
How interest works on a HELOC
The Selina HELOC has a variable interest rate which means your payments can rise or fall depending on market conditions. Interest is charged only on the balance you’ve drawn, making HELOCs potentially more cost-effective than traditional loans over the longer term if you borrow gradually.
How to qualify for a HELOC
How to Qualify for a HELOC
Selina assess several factors before approving a HELOC:
- Home equity – You usually need at least 20% equity.
- Credit score – Higher scores may unlock better rates.
- Income and affordability – Proof that you can manage repayments.
- Property value and location – Verified through a valuation process.
What can you use a HELOC for?
What Can You Use a HELOC For?
Common purposes include:
- Home renovations or extensions
- Paying for independent school fees
- Funding education or business ventures
- Covering unexpected expenses
- Funding a buy to let
- As an alternative to bridging
Many homeowners appreciate the flexibility of drawing from funds when needed rather than taking a lump sum upfront.
Glossary of HELOC terms
Equity: The portion of your property you own outright — calculated as your home’s market value minus any outstanding mortgage balance.
Home Equity Line of Credit (HELOC): A type of second charge mortgage (also known as a secured loan) in the UK, that allows you to borrow against your equity in your home. It provides a flexible credit facility, meaning you can borrow, repay, and re-borrow funds up to an agreed limit as needed.
Flexible Draw Period: The initial phase of a HELOC (2-5 years) during which you can withdraw funds, typically paying interest and repayments only on what you use during this period.
Fixed Period: The later phase (5-30 years) where you can no longer draw funds and start making fixed repayments over the remaining term of 5-30 years.
Credit Limit: The maximum amount you can borrow under your HELOC agreement.
Interest Rate (Variable): The percentage charged on the amount borrowed. Variable rates fluctuate with the market.
Loan-to-Value (LTV) Ratio: A measure comparing your total loan amount (including both the loan and the 1st charge mortgage) to the property’s appraised value, used by lenders to assess risk.
Affordability Assessment: The lender’s review of your income, debts, and expenses to ensure you can afford repayments.
Conclusion
A HELOC can be a flexible way to tap into your property’s equity without remortgaging or borrowing a big lump sum. As with all financial products, understanding how it works, especially the draw and repayment periods, and how interest is charged, is key to making an informed decision that suits your situation.
Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
