Home Equity Line of Credit (HELOC)

What is it?

A home equity line of credit (HELOC) is a line of credit that is secured by the equity you already have in your home. This type of loan functions more like a credit card than a traditional loan. Instead of getting a lump sum of money upfront, this type of allow gives you a line of credit that you can borrow against during a certain period of time. Each HELOC comes with a credit limit, or a cap on the amount of money you can borrow and in that way it's a lot like a credit card. During your draw period, you'll make a minimum monthly payment and the remainder of the money you borrowed will be due at the end of the draw period. This type of loan is very popular to use for a big expense that has a definite end date, like college or child care. 

Advantages of a HELOC

• You only pay interest on the amount you use. 
• It gives you access to a large sum of cash. 
• Interest rates are usually lower than they are on a first mortgage.  
• It allows you to take advantage of the equity in your home without selling. 

Disadvantages of a HELOC

• Your bank can freeze your HELOC if your home loses a large portion of its value. 
• Interest rates are usually variable. 
• There might be an annual fee to keep it open. 
• The bank can foreclose on your home if you don't make payments.

Is it right for you?

HELOCs are a good option for people who:

• have a big, one-time expense like college tuition or a remodel 
• have steady, reliable income

Thinking about a HELOC? Use our monthly mortgage payment calculator to check your amortization schedule and estimate how much equity you have in your home.