A Home Equity Line of Credit (HELOC) is a type of loan that allows homeowners to borrow money using the equity in their home as collateral. A HELOC is similar to a credit card in that it allows the borrower to borrow money as needed, up to a certain credit limit, and only pay interest on the money they borrow.
HELOCs are often used for home improvements, consolidating debt, or other large expenses. The interest rate on a HELOC is usually variable, based on an index such as the prime rate, and can change over time. Borrowers typically have a draw period, usually around 5-10 years, during which they can access the funds, and a repayment period, usually around 15-20 years, during which they must repay the loan.
To qualify for a HELOC, borrowers typically need to have a good credit score, a low debt-to-income ratio and a significant amount of equity in their home. Lenders will also typically require an appraisal of the property to determine its value and to ensure that the borrower has enough equity to borrow against.
It’s important to note that a HELOC is a secured loan, meaning that the lender can foreclose on the property if the borrower defaults on the loan.