A HELOC differs from a conventional home equity loan in that the borrower is not advanced the entire sum up front, but uses a line credit  to borrow sums that total no more than the credit limit, similar to a credit card. HELOC funds can be borrowed during the "draw period" (typically 5 to 25 years). Repayment is of the amount drawn plus interest. A HELOC may have a minimum monthly payment requirement (often "interest only"); however, the debtor may make a repayment of any amount so long as it is greater than the minimum payment (but less than the total outstanding). The full principal amount is due at the end of the draw period, either as a lump-sum baloon payment or according to a loan amortization schedule.

Another important difference from a conventional loan is that the interest rate on a HELOC is variable. The interest rate is generally based on an index, such as the Prime Rate or Libor. This means that the interest rate can change over time.

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