The Specifics of Home Equity Lines of Credit

Mortgages

You’ve probably heard the term “HELOC” used when describing home loans. HELOC stands for “Home Equity Line of Credit,” which is basically a loan (often a second mortgage) that allows you to access your Jacksonville Beach home’s equity when you need it.

Many borrowers use HELOCs as an emergency fund, to remodel their home, or to pay for college or credit card expenses.

What is a HELOC and is it Right for me?

A HELOC is essentially a line of credit which, unlike standard loans, does not have a fixed dollar amount. Instead, a borrower draws upon the line of credit as needed. A borrower can draw any amount desired (up to the line of credit’s maximum) and at any time.

Many HELOC’s allow a borrower to draw from their line of credit using a special credit card or special check.

Two terms should be remembered when dealing with HELOCs. These include the “draw period” and the “repayment period.”

The draw period is the time frame that is set by the lender for when the borrower can use the line of credit. The repayment period is the time when the borrower must repay the loan. Some lenders require that the borrower repay the loan at the end of the draw period, which means that many borrowers must refinance at that point.

What to Watch Out for

The interest rate on a HELOC can be downright confusing for many borrowers, as the balance of the loan may change from day to day, depending on the draws and repayments on the loan. The interest rate is calculated on a daily basis and is directly tied into the prime rate.

Another possible problem with HELOCs is that, unlike standard ARM loans, there are no rate adjustment caps.

Although HELOCs are convenient for those with equity in their Jacksonville Beach home, it is important to thoroughly read and understand all of the loan details before apply for a HELOC.

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