Which type of mortgage allows borrowers to borrow against the equity in their home?

Borrowers looking to tap into the equity they have built in their homes typically utilize a Home Equity Line of Credit (HELOC). A HELOC operates much like a credit card, allowing homeowners to borrow against the equity in their property up to a specified limit. It is a revolving line of credit, meaning that borrowers can withdraw funds as needed, pay them back, and then borrow again, all while taking advantage of potentially lower interest rates compared to other types of loans.

This option is specifically structured to provide flexibility and is often used for home improvements, debt consolidation, or other expenses that require significant funds. Unlike conventional mortgages or graduated payment mortgages that are primarily aimed at purchasing or refinancing a home, or reverse mortgages that are designed for older homeowners to access equity without monthly repayment obligations, a HELOC directly targets the equity aspect, making it the ideal choice for leveraging home value.