Definition
A HELOC is a revolving line of credit secured by the equity in your home, functioning much like a credit card with your house as collateral. Homeowners draw against it as needed, often to fund renovations or cover major expenses, and pay interest only on the amount actually borrowed. Any outstanding HELOC balance is a lien against the property that must be paid off at closing when you sell, right alongside your primary mortgage, which reduces your net proceeds by that amount. HELOCs usually carry a variable interest rate and a set draw period, after which the borrower enters a repayment phase with fixed monthly payments. Keeping track of your current HELOC balance is important before listing a home, since it directly affects how much equity you actually have to work with.
Example
Victor had drawn $35,000 against a HELOC to renovate his kitchen a few years earlier, and he'd mostly forgotten how much of it was still outstanding. When it came time to sell, the title company confirmed that balance had to be paid off in full at closing, right alongside his primary mortgage, which took a real bite out of his expected proceeds. He was glad he'd checked his payoff amounts early with both lenders before setting his price expectations with a cash buyer. Knowing both his mortgage and HELOC balances up front let him set realistic expectations with his agent instead of being surprised at the closing table by a smaller check than he'd imagined. Victor ended up accepting a cash offer that still left him with a modest amount after both liens were paid off, which was more than he would have netted after commissions on a traditional listing. He said the biggest lesson was checking every payoff amount before ever agreeing to a sale price.