What is a Home Equity Line of Credit
A home equity line of credit, often referred to as HELOC, is a loan that offers you an amount of cash within a specific period of time and uses your home equity as collateral. The loan usually has a low rate of interest and includes tax benefits that are not available with other loans.
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The HELOC home equity loan generally will not offer you the entire sum up front but will allow you to borrow smaller amounts that are similar to that of credit cards. You will have a monthly payment like a credit card or second home mortgage but only have to pay back what you use and the interest on it. With a HELOC the interest rate is a variable rate rather than a fixed rate and will change according to an index. At the end of the loan period you will have to pay the full principal if you selected a balloon payment or be faced with borrowing more to pay off the debt.
It is important to remember that you are borrowing against the equity of your home and with your home as collateral you are risking foreclosure if you cannot repay the loan, meet it’s requirements or find other means of refinancing. With low interest rates and being able to use interest as a deductible, HELOC loans have become popular in recent years. But keep in mind there are other options available even though a home equity line of credit may have a better image than a second mortgage or other types of mortgage loans or credit.
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