What Is A HELOC + Can I Get One?

What is a HELOC? A HELOC is a Home Equity Line of Credit. So first things first, you need to have a home that qualifies for this. It is likely that you need a home with at least 20% down or equity in that home greater than 20%.

A HELOC differs from a conventional home loan, because the borrower has not advanced the entire sum up front, but uses a credit to borrow. Repayment of the amount drawn is that, plus interest. A HELOC may have a minimum monthly payment requirement. Also, a debtor may make a repayment of any amount so long as it is greater than the minimum payment. The full principal amount is due at the end of the agreed upon draw period.

 

What Is A HELOC and Can I Get One?

Another important difference from a conventional home equity loan is that the interest rate on a HELOC is variable. The interest rate is generally based on the prime rate. Homeowners shopping for a HELOC (line of credit) must be aware that not all lenders calculate the same way.

 

What More Do You Need To Know?

HELOC loans became very popular in the United States, in part because interest paid was typically deductible under federal and many state income tax laws in the old paradigm. This effectively reduced the cost of borrowing funds and offered an attractive tax advantage over traditional methods of borrowing.

Another reason for the popularity of HELOC’s was their flexibility This is both in terms of borrowing and repaying on a schedule determined at the outset. Within the lending industry, a HELOC is categorized as a second mortgage…a term the general population are more weary of.

The basis of a home equity line of credit is your house itself. That means a failure to repay the loan could result in foreclosure or failure to pay your obligation. For this reason, lenders generally require the borrower to maintain a certain level of equity in the home as a condition of providing a home equity line.