What Are HELOC Loans?

A HELOC, or Home Equity Line of Credit, is a type of loan that lets homeowners borrow against the equity in their home. Equity is the portion of the home’s value that you own outright—essentially, what’s left after subtracting any existing mortgage balance from the home’s market value. Unlike a traditional loan that gives you a lump sum, a HELOC works more like a credit card, offering a flexible line of credit you can draw from as needed.

How HELOC Loans Work

• • Access Period: There’s a phase where you can borrow money from the line of credit, using it for things like home improvements, debt consolidation, or other expenses.

• • Repayment Phase: After the borrowing period ends, you repay what you’ve used, typically over an extended time. During the borrowing phase, you might only need to pay interest on the amount you’ve drawn, but later, payments include both the borrowed amount and interest.

• • Flexibility: You can borrow, repay, and borrow again up to a set limit, as long as you stay within the terms.

Key Features

• •  Interest Rates:
    
    • • Usually adjustable, meaning they can change based on market conditions, though some lenders might offer fixed-rate options for portions of the balance.

  • Collateral:

    • • Your home secures the loan, so it’s at risk if you can’t repay.

  • Draw and Repayment Terms:

    • • The borrowing phase lasts for a set time, followed by a repayment phase. The total duration depends on the lender’s terms.

  • Access Method:

    • • Funds are often accessed via checks, a debit card, or online transfers tied to the HELOC account.

• Eligibility Basics

• • Equity: You need enough ownership in your home—more equity means a larger potential credit line.

• • Credit History: Lenders look for a solid track record of managing debt.

• • Income: Proof of steady earnings helps show you can handle payments.
  • Debt-to-Income: They’ll check that your existing debts don’t overwhelm your income.