HELOC is the abbreviated form of Home Equity Line of Credit. In this type of loan, a borrower can lend the maximum amount from the lender for a term. For HELOC, the home of the borrower is kept as collateral, because usually ones home is his most valuable belonging. The loan is used to pay off a number of expenditures.
HELOC is different from the general loans in many ways. First of all the interest rate in the Home Equity Line of Credit is not constant. It varies from lender to lender. Interest rate of HELOC, alters over the term as the prime rate changes. Secondly, the borrower isn’t given the whole sum in one episode. Rather he gets credits which sum up to his total line of credit. Borrower draws money in the 5-25year long “draw period”. Repayment of the amount is then the total amount drawn plus the interest. The minimum Home Equity Line of Credit payment per month is the interest only but a borrower can pay more than that without reaching to the total repayment.
The market value of a home determines the line of credit on it. The lenders usually take a percentage of the value of home and subtract the amount of the existing mortgage on it (if it has any), to specify the credit limit. In determining the credit limit, the lenders also take in account the borrower’s monthly income, ability to pay back the loan and the borrower’s history.
HELOC offers several benefits. The major one is that the interest paid is deductible under a number of federal and state taxation laws. HELOC is also very flexible as the terms of borrowing and repaying schedules are determined by the borrower. Generally, there is either no or refundable application fee. HELOCs are free of usage penalties. HELOCs became very famous in the beginning of 2000 due to these reasons.
HELOCs also have some drawbacks. The lack of constant interest rate is the biggest flaw of all. A good research should be done to find a lender who keeps in mind the difference between prime rate and the payable interest rate. If payments aren’t made on time, the Home Equity Line of Credit can be ceased or penalized in one way or the other . The HELOC can also be frozen if the market value of the home fall off considerably.
This home loan is user-friendly resource, which can help you understand Home Equity.
Related posts:
- Low Interest Personal Loan Frequently Asked Questions
- Pros And Cons Of Home Equity Loans
- Home Equity Loan – Just The Basics
- Home Loans – Quick Overview
- Bad Debt Loans Consist Of A Panel Of Professionals And Expert
- Get The Facts About Adjustable Rate Mortgage
- Home Loan After Bankruptcy Questions And Answers
- Information To Be Aware Of When Looking For A Mortgage
- Find Out More About Home Loans
- Down Payment – Quick Facts
Tags: banking, credit, Debt, finance, HELOC, Home Equity Line of Credit, interest rate, loan, mortgage, personal finance