Definition: A Home Equity Line of Credit (HELOC) is a revolving line of credit secured against the equity in a home, allowing homeowners to borrow funds up to a limit based on their home’s value, typically at a variable interest rate.

Key Points:

• Flexible access to funds: HELOCs provide flexibility, allowing borrowers to withdraw and repay funds as needed, similar to a credit card but with generally lower interest rates due to the home acting as collateral.
• Interest-only payments: Many HELOCs allow borrowers to pay only the interest on the amount they’ve drawn, though full repayment terms eventually apply.
• Variable rates: HELOCs often come with variable interest rates, meaning the rate can fluctuate based on market conditions, which could impact monthly payment amounts.
• Uses: Funds from a HELOC can be used for various purposes, including home improvements, debt consolidation, or personal expenses.

Considerations:

• Risk of foreclosure: Since the home is collateral, defaulting on a HELOC could put the home at risk of foreclosure.
• Fees and conditions: Some HELOCs include fees or conditions, such as minimum draw amounts or penalties for early repayment.

Last modified: November 5, 2024