What is a HELOC card? 3 options and how to decide if it’s right for you

Over the past several years, a new crop of credit cards has emerged on the market, catering to cash-strapped but equity-rich homeowners.

The companies backing these cards present a unique proposition to consumers: Get all the rewards, perks and benefits of a credit card but with the low rates and terms that come with financing backed by your property with a home equity line of credit (HELOC) card.

This type of product operates much like any other credit card — except it's secured by the value of your home, like a traditional HELOC. This means the issuer can have a claim to your home if you fail to repay. But because home loan products are less risky than other types of debt, these cards typically have lower rates and a higher credit limit than other credit cards on the market.

More money for less may seem like a no-brainer, but the card's structure, convenience, terms and securitization may make it riskier than other credit card products, where your home isn't on the line. Below, CNBC Select outlines what you need to know about this nascent product type and some issuers leading the way.

A HELOC is a revolving line of credit backed by the value of your home. 

With this type of financing product, you can pull from the line as much as you need — up to the maximum limit — during the draw period, which typically lasts 10 years. You'll make interest-only payments on what you take out during this time, but won't need to pay down the principal amount monthly.

Once the draw period is over, you can no longer pull from the line, and repayment starts. This typically lasts 20 years. 

Unlike other lines of credit, your home is used to secure the money you withdraw. That means that if you fail to make your payments on time, your lender could force you into foreclosure.

The biggest difference between a HELOC card and a traditional HELOC is their disbursement methods and structures. 

With a typical HELOC, the amount you withdraw from your available credit is wired into your bank account or via a check. However, with a HELOC card, you can access your line of credit directly through your card. You can also almost always access cash from a traditional HELOC at no fee, unlike many HELOC cards.

In many cases, HELOC cards also have shorter draw periods than traditional HELOCs, meaning you'll have less time to draw from the line of credit and you'll start repaying sooner. However, with a traditional HELOC, you won't get rewards for spending as you do with some HELOC cards. 

Overall, HELOC cards may be more convenient and offer more rewards than traditional HELOCs. However, cards usually offer shorter draw periods and include fees that make it pricier to get cash.

Pros and cons of using a HELOC card over a traditional HELOC

Best for high credit limits: Aven Home Equity Visa® Card

Who’s this for? If you're looking for the most amount of borrowing power, the Aven Home Equity Visa® Card offers credit limits of up to $400,000. Just know that hazard insurance is required for accounts with credit limits over $100,000.

Other great perks: Aven offers a foreclosure protection guarantee for accounts with $10,000 or less in outstanding balances (and a credit score of 700+) if you happen to lose your job. The card also earns rewards of two points per $1 spent on all purchases when AutoPay is on; otherwise, you earn 1.5 points per $1.

Best for earning rewards on home purchases: Trovy HELOC Card

Who’s this for? If you're looking to make some changes around the house with your HELOC funds, the Trovy HELOC Card earns 2 points per $1 spent on home categories (plus 1 point per $1 spent elsewhere). This includes things like home improvement stores, home services merchants, utilities and insurance payments and more.

Other great perks: Cardholders can receive a statement credit of up to $25 per quarter for eligible home services purchases, or up to $100 per year. Those who hit Trovy's premium tier (by spending $24,000 within 12 months) will have this credit doubled to up to $50 per calendar quarter, or $200 per calendar year. You can apply online within minutes, and within four days, you could have access to your funds.

Best for long draw periods: Navy Federal Credit Union Home Equity Credit Card

Who’s this for? The Navy Federal Credit Union Home Equity Credit Card is a great option for those looking to use their home equity over a long timeframe, as it offers a draw period of up to 20 years, with an additional 20-year repayment period.

Other great perks: The NFCU Home Equity Credit Card comes with travel protections like Roadside Dispatch®, Auto Rental Collision Damage Waiver and Worldwide Travel and Emergency Assistance Services.

The biggest difference between HELOC cards and traditional credit cards is that a HELOC card is backed by the value of your home, while other credit cards are not. 

Because of this, you can get a lower rate with a HELOC card than you would with any other credit card. But this also means that the lender can force you into foreclosure if you fail to make payments, something that won't happen with a credit card. 

In addition, the line of credit will probably be much larger with a HELOC card than it otherwise would be with a typical credit card.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every credit card list review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of credit card products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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