What is a HELOC and What it can be Used For
Information Center - Financing
Written by Anthony Reyes   

Home Equity Line of Credit (HELOC) or Home Equity Line is a kind of loan that lets a borrower pull money or write checks from their home equity.  This is convenient for anyone that has been able to pay off a good amount of their home and wants to use this money to help pay previous mortgages, student loans, home improvements, or even credit cards. 

HELOC can best be described as money that a borrower can withdraw funds pertained to a predetermined amount and your monthly payments are based on the money withdrawn.  If you were to take out a HELOC on your home that was $50k you would basically be able to write checks against that $50k.  Your monthly payments would then be based on that $50k.  This is like a credit card that sees your home be used as collateral.  While this can be a good and bad you will need to be careful about the decisions you make for your home equity loan.  They are more times not nothing more than a second mortgage on your house and is best used for things like; financial help for your small business, paying off credit cards, home renovations, and even student loans and college courses.  HELOC can also be used as a “just in case” fund for emergencies and unforeseen expenditures.

A majority of HELOC programs use what is termed a “draw period” and this is the time that is allotted for you to get cash against this credit line.  This means that during the draw period the borrower will only be able to make interest only payments on the contracted loan.  This usually last for a term of four to 10 years and when this timeframe ends the loan will go into a repayment period that will last for 10-20 years.  Typically this payment will be the balance at the end of the draw period, current rate included of course. 

Using a HELOC loan can be riskier than just your everyday average loan.  Make sure you know the inns of outs of what you are getting yourself into before you sign or agree to anything.  Interest rates can be brutal with an adjustable rate mortgage (ARM) which is exactly what a HELOC is.  Tread on this ground very carefully and make sure you seek advice from a professional broker before you jump right in to this venture of establishing a line of credit with your house as collateral.