Line of Credit

A home equity line of credit or HELOC is a loan in which the lender agrees to lend a maximum amount within an agreed term, where the collateral is your equity in your house. Since a home is generally a person’s most valuable asset, many homeowners use HELOCs only for major items, such as education, home improvements, or medical bills.

This video explains how HELOCs work.

A HELOC differs from a conventional home equity loan in that the borrower is not advanced the entire sum up front, but uses a line of credit to borrow sums that total no more than the credit limit, similar to a credit card. HELOC funds can be borrowed during the “draw period”. Repayment is of the amount drawn out plus interest.

A HELOC may have a minimum monthly payment requirement which is often interest only; however, the debtor may make a repayment of any amount so long as it is greater than the minimum payment and less than the total outstanding. The full principal amount is due at the end of the draw period, usually as a lump-sum payment. Also interest rates on HELOCs are variables. This means that the interest rate can change over time.

Since the security of a HELOC is the home, failure to repay the loan or meet loan requirements may result in foreclosure.  As a result, lenders generally require that the borrower maintain a certain level of equity in the home as a condition of providing a home equity line.

Please contact us if you have any further questions about Home Equity Line of Credit loans.  We’d love to help you.

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