What is a HELOC?
A HELOC is a home equity line of credit. It is a loan, using your home as collateral, that lets you borrow up to a certain amount, rather than a set dollar amount. A HELOC (pronounced HE-lock) acts like a credit card: It has a credit limit, and you can borrow against it, pay all or part of the balance, and borrow again up to the credit limit. The interest rate varies with the prime rate.
The first 5 or 10 years of a HELOC (the period varies by lender) are known as the draw period. During the draw period, you may borrow from the HELOC and the minimum monthly payments are interest only.
After the draw period expires, the repayment period begins. Usually the repayment period last 20 years. During the repayment period, you have to pay principal and interest, so that the entire loan is repaid by the end of the period.
If you have equity in the home, have fairly good credit and have enough income to make monthly payments on what you borrow, you can apply at a mortgage lender.
The interest rate on a HELOC goes up and down with the prime rate. When the prime rate is low, the monthly payments are relatively low. When the prime rate is high, the monthly payments are relatively high.
Most often, homeowners use HELOCs to pay for home repairs and renovations. But people use HELOCs to pay for college, buy cars, pay off credit cards, make down payments on vacation homes, and myriad other reasons, wise and unwise.
HELOCs often have low interest rates compared to other available forms of debt. There are no closing costs associated with HELOCs. When the balance on the line of credit is zero, the monthly payment is zero.
If you don't repay the HELOC, the lender may foreclose on the house. If you use a HELOC to pay off credit card debt, there is the risk that you'll just charge up the credit cards again, putting yourself deeper in debt. When the draw period ends and the repayment period begins, the minimum monthly payment can jump to a hard-to-afford level.
Recent HELOC stories
Your payments could go up drastically once your home equity line of credit turns 10.Read more
When a HELOC is secured by your home, one of these options may help you to keep your property.Read more
As property values and mortgage rates rise, home equity loans and HELOCs heat up.Read more
Here's how to review your borrowing options when your home needs a serious facelift.Read more
If a home equity loan is needed to pay for school, here's what you need to know.Read more
If the draw period on your HELOC is ending in the next few years, here's a plan of action.Read more
Have a variable-rate home equity line of credit? Consider refinancing and locking in a lower rate.Read more
Your current home could help you buy a house south of the border.Read more
You'll soon have higher monthly payments on your HELOC. How should you prepare for that?Read more
Facing rising debt payments soon? Here are some options to explore for winning the battle.Read more
A home equity loan or HELOC can be a blessing or a curse. Know the difference.Read more
Repair your credit score before applying for a HELOC to pay for home renovations.Read more
Don't bet the house that you can get a home equity loan after owning for just one year.Read more
With a variable rate, you face risk with a home equity line of credit. Is it time to refinance?Read more
Even if you want to aggressively fund your retirement, you still need to be careful.Read more
Worried about looming payments on a home equity line of credit? You still have options.Read more
If you can't save your marriage, how can you extract the equity in your home?Read more
If you're considering a home equity loan for a project, know what you'll actually pay.Read more
Retirees face challenges in deciding whether to borrow against the value of their homes.Read more
Your home can raise cash in many ways. What's best: A mortgage, home equity loan or HELOC?Read more
You found out your new mortgage is really a home equity line. Here's your loan lowdown.Read more
If you can pay off your house fairly soon, you might have a cheaper mortgage option.Read more
Cash-out refinancing on your home is one way to pay for college, but make your kid pay, too.Read more
Increase your HELOC payments to pay down some of the debt before the loan is due.Read more
While an offer sounds tempting, transferring your home loan to a credit card may be risky.Read more