What is a HELOC and How Does it Work?
A HELOC is a home equity line of credit. This is a loan in the form of a line of credit secured by the equity* in your home. A HELOC allows you to take out portions of the total loan amount (or line of credit) in the form of a draw, instead of getting all of the funds at one time like a traditional mortgage. You may use the funds or drawdown from the line of credit whenever you need it.
Typically, HELOCs have a draw period, which is a specific time frame in which you can draw down from the line of credit. The draw period is usually between 5 and 30 years.
*Equity is the difference between the amount owed on your mortgage and the market value of the home. Equity increases over time as you pay down your mortgage. Equity can also rise as the appraised property value increases.
How do HELOC Payments Work?
During the draw period, you will pay monthly interest payments. Once the draw period ends, you will be required to pay back the entire line of credit balance along with any remaining interest. Repayment options can be flexible, depending on your financial needs.
Why Should I get a HELOC – HELOC Benefits
For many people, a home is your greatest asset. As you pay off your mortgage, your equity increases in your home. HELOCs allow you to borrow money as you need it, instead of getting all the funds at one time. You can choose when to get the money and how to use it.
Additionally, many people get a HELOC to pay for college, make a down payment on an investment property, consolidate debt, or pay for home renovations.