How to Get a Home Equity Line of Credit (HELOC)
What it is
A home equity line of credit, or HELOC, provides people with large amounts of cash at relatively low interest rates. They may also provide borrowers with certain tax advantages unavailable with other types of loans. Home equity lines of credit allow people to use their homes as collateral for the loan. This type of loan puts homeowners at risk of losing their homes if they default on the loan. The home equity line of credit features a large final balloon payment and may lead to refinancing or another loan to pay off the debt. If the borrower cannot qualify for refinancing, this also puts the home in jeopardy.
Because home equity loans are so easy to access, they are a way to allow people to borrow money more freely. A home equity line of credit is like a credit card. The borrower receives a specific credit limit according to the home's value. The draw period usually lasts from five to 25 years and allows borrowers to obtain HELOC funds whenever the need arises. Borrowers are only required to pay back what is withdrawn as well as any interest. Often, borrowers only need to repay the interest until the draw period has ended. Interest rates on home equity lines of credit are variable based upon the changing index.
Who it's for
Typically, home equity lines of credit are for people who have mature home financing and require additional cash for renovations, education and other major investments.
What you need to do to apply
In order to obtain a home equity line of credit, interested applicants will need to contact a local lending institution and inquire about the different options and rates available. Personal and financial history, including a credit report, will need to be made available to the lending institution. A property appraisal may also be required.
