A Home Equity Line of Credit (HELOC) is a type of loan that allows homeowners to borrow money against the equity in their home. It’s certainly better than a credit card loan, but there are some risks involved.
The portion of your home’s value that you actually own is called equity. A HELOC allows you to borrow up to 65-80% of the equity in your home. There are no rules about what you can use the money for, but your lender may set some other limits depending on your credit score and income situation.
HELOCs often have variable interest rates, which means the interest rate can change over time. The interest rate is usually tied to a benchmark rate, such as the prime rate. There may also be some fees, such as an annual fee, inactivity fee or closing costs.
You can repay your HELOC at any time, either in a lump sum or in full, without incurring any penalties. If you have an outstanding balance when you sell your home, the lender will be repaid from the proceeds of the sale.
Sounds good? Well, there’s a catch. A HELOC is secured against your home. That means you risk losing your home if you can’t repay the loan. So, be sure you’ll have a good payment plan.
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