Home Equity Line of Credit (HELOC) Basics


Home Equity Line of Credit (HELOC) is term to describe loans that uses a borrower’s home as collateral. Also referred to as home equity line, lenders determine the maximum loan balance available where homeowners could draw credits at their judgment. Like all typical loans, a predetermined interest rate is agreed upon based on current market rates.HELOCS should not be confused with other home loans such Reverse mortgages for example. Unlike Reverse Mortgages, the total amount of credit could not be released upfront but funds could be steadily drawn from the credit in a period usually lasting anywhere from 5 to 25 years. Borrowers are not required to make immediate payments on the drawn funds, only that they make a predetermined minimum payment.Loans could be paid in increments during the draw period but all remaining balance must be paid before the loans maturity date. At the end of the draw period borrowers are expected to payback the full principal of the loan made. They are also required to pay a HELOC balloon payment and male payments based on a loan amortization schedule.These types of loans offer borrowers a degree of flexibility in terms of loan repayments. Homeowners may choose a number of payment options which only require them to make pre agreed minimum interest payments.HELOCS are similar to having a credit card line. Credits are drawn in a specific period against the maximum available home equity. Like credit cards, borrowers are required to make minimum monthly payments until credit are fully paid.