What is a HELOC?

HELOC stands for home equity line of credit. So what is a HELOC? A home equity line of credit is simply a mortgage. It is a loan that is secured by your home just like any other home loan. The main difference between a regular mortgage and a HELOC is that a HELOC is an open-ended loan. This means that the loan debt is revolving. You can think of this as money going in (paying down your HELOC) and money going out (borrowing money with your HELOC). This is very similar to a credit card where the credit balance increases and decreases depending on how much you borrow or pay back. As with credit cards, the interest rate you pay on the HELOC is a variable interest rate usually based on the PRIME rate.

In the beginning years of a HELOC, there is no real time frame by which the loan is scheduled to be repaid. The period where the loan does not need to be repaid, and you can borrow money against your home up to the HELOC limit, is called the draw period. Draw periods can last up to ten years or more. After the draw period has expired, then the loan follows a regular amortization period where scheduled payments will result in the loan being paid of after a certain amount of years.

If you take out a HELOC, the minimum payments during the draw period are interest only payments where no principal payment is required. Of course, you can pay down the HELOC, borrower against it, or pay it off. If you have sufficient equity in your home, you can even increase your HELOC limit and borrower more money when needed. HELOC's are great tools for accessing cash for home improvement, debt consolidation, or making any other large purchases. Depending on the tax laws where you live, HELOC interest payments may also be tax deductible just like your regular mortgage interest.

Find the Best HELOC

Everybody wants to get a great interest rate on their HELOC. Securing the best HELOC normally comes down to having sufficient equity in your home and having a good to excellent credit score. Low fee or no fee HELOC's are very common, so your concern should be focused on the interest rate. Rates are offered as some margin above, below, or at the prime lending rate. Mortgage brokers do have a degree of control over the interest rate you are being offered if you have chosen to use a broker. Use a BeatMyBroker.com mortgage professional that is committed to offering the lowest HELOC rates for you next HELOC.