A Home Equity Line of Credit (HELOC) is a line of credit that allows you to borrow against the equity you’ve already built up in your home. The line of credit is secured by your home as collateral and gives you a revolving credit line to use for large expenses or to consolidate higher-interest rate debt on other loans, such as credit cards. A HELOC often has a lower interest rate than some other common types of loans, and as a line of credit, a HELOC allows for flexibility around both borrowing and repaying money.
Why Choose Home Equity Lines of Credit?
A Home Equity Line of Credit is often used to finance a home remodel, but can be used to finance other big purchases as well. They are a good choice for home remodels because the borrower can access the line of credit to pay for expenses as they arise, which is helpful in the case of a remodel. The HELOC is like a credit card in that it’s an “open-end loan;” the borrower can draw as little or as much as is needed from the equity loan, up to an established limit. The HELOC is easy to draw from at any time, and as the outstanding balance is repaid, the amount of available credit is replenished – much like a credit card.
A HELOC is unlike a credit card in that it offers lower rates, and is structured with a “draw period,” during which you can “draw” from borrowed funds, and a subsequent “payment” period, during which you pay down your outstanding balance. Also unlike a credit card, you may be able to deduct the HELOC interest you pay from your taxes.