A home equity line of credit (HELOC) is a type of second mortgage that gives you (the borrower) a revolving line of credit which acts similar to a credit card. The benefit of this type of loan are a higher amount with lower interest rates.
Instead of distributing the loan in one lump-sum, the lender allows the borrower to draw from the funds whenever he chooses. If you receive one, you don't have to use it. Many people choose to have it available only for emergencies.
Steps Involved In Obtaining A HELOC
Step 1 - The borrower applies for the HELOC.
Step 2 – The lender awards the loan and sets the HELOC limit.
Step 3 – The loan enters the draw period.
Step 4 – The loan enters the repayment period.
The biggest advantage of a HELOC is simply put:
"HELOC loans give borrowers the flexibility to liquidate their home equity at the drop of a hat."
Before you decide to apply for a HELOC, take the time to consider your alternatives. Homeowners that qualify for a home equity line of credit may also choose to liquidate their equity by refinancing their current mortgage or by taking out a home equity loan.Just check out some of our interest rates and programs below.
Advantages of HELOCs
Lower interest rates than most credit cards and personal loans.Since HELOCs are secured by property, lenders are able to offer substantially lower interest rates. The average HELOC interest rate is 1 percent above the current prime rate – a few HELOCs even offer interest rates set at prime.
High credit limits. If your home has a lot of equity, you will probably receive a very high limit on your HELOC. You do not need to specify how you will use this money. You can use it to start a business, do home renovations, pay tuition, or anything else you please.
Tax-deductable interest. Since a HELOC is technically considered a home loan, most state and federal laws make the loan’s interest tax-deductable. Now, that’s a feature you won’t find in any credit card offer!
Revolving credit line.Unlike home equity loans and home refinancing, HELOCs do not give borrowers an upfront sum of money. Instead, you can take out cash whenever you please. When you have no money withdrawn, you pay no interest.
Low fees. Most borrowers are able to take out a HELOC without paying much (if any) money upfront. Refinancing or taking out a home equity loan could cost thousands – but, lenders commonly open HELOCs with no upfront charge.
Flexible repayment.Many HELOC lenders offer flexible repayment options. As a borrower, you may choose to make interest-only payments during some months, you may turn a HELOC withdrawal into a fixed-interest loan, or you may extend the term of the credit line. Keep in mind that not all HELOC lenders offer these features.
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A home equity line of credit (HELOC) is a type of second mortgage that gives you (the borrower) a revolving line of credit which acts similar to a credit card. The benefit of this type of loan are a higher amount with lower interest rates.
