Home Equity Line
A Home Equity Line of Credit, otherwise referred to as an HELOC, is a special line of credit that is based upon the amount of equity in your home. In a Home Equity Line of Credit loan, your approved credit limit is determined by the amount of equity in your home and your home is used as collateral. Many people find that a Home Equity Line of Credit loan offers many benefits and since there is usually a large amount of equity found in the home, the loans are used for large expenditures, not simple day-to-day purchases. Typically, items such as college loans, outstanding student loans, medical bills, or major home improvements are the basis for Home Equity Lines of Credit loans.
A HELOC loan differs from a traditional second mortgage in several ways. First, a second mortgage is referred to as a Traditional Home Equity Loan. A Traditional Home Equity Loan is basically a second mortgage on your home, the HELOC loan is an actual credit loan that is used as a check or credit card to pay for other purchases, as you see fit.
Many people prefer a Home Equity Line of Credit loan due to the fact that these loans typically have a lower interest rate than you would pay if you made these large purchase with a credit card. The amount of equity in your home determines how much your Home Equity Line of Credit will be, and is usually based upon a certain percentage of that amount. The loans are set with a specific allotted time that you are allowed to borrow money, followed by a defined time set for repayment. These are known as the Draw and Repayment periods.
Another benefit to using a HELOC loan is the fact that the interest may be deducted from your Federal Taxes. For people who are looking for a way to secure financing for large items, HELOC loans offer many advantages. In fact, many people find that the benefits of HELOC loans are so great, that they choose to purchase a second home with their loan.
When choosing HELOC loans, be sure to read all of the fine print carefully, and inquire about the interest. Some HELOC loans utilize what is referred to as a variable interest rate. This means that your payments may change so be sure to understand what those differences may mean to your ability to repay your loan.