Home Equity Line Of Credit - HELOC

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DEFINITION of 'Home Equity Line Of Credit - HELOC'

A line of credit extended to a homeowner that uses the borrower's home as collateral. Once a maximum loan balance is established, the homeowner may draw on the line of credit at his or her discretion. Interest is charged on a predetermined variable rate, which is usually based on prevailing prime rates.

Once there is a balance owing on the loan, the homeowner can choose the repayment schedule as long as minimum interest payments are made monthly. The term of a HELOC can last anywhere from less than five to more than 20 years, at the end of which all balances must be paid in full.

BREAKING DOWN 'Home Equity Line Of Credit - HELOC'

Several factors can lead to strong growth rates in this type of borrowing:

-Increased retail sales channels, which have brought HELOCs to the masses. Most of these sales channels come from local banking institutions.
-Rising home values, which increase the amount of equity available to homeowners
-Prevailing low interest rates coupled with moderate inflation
-The fact that mortgage interest is often tax-deductible, making it more attractive than alternative borrowing methods

Because HELOC interest is variable, homeowners must be aware of prevailing interest rates -a spike can cause repayment balances to rise rapidly.

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RELATED FAQS
  1. What are the differences between revolving credit and a line of credit?

    In basic terms, revolving credit is a specific type of line of credit. A line of credit and revolving credit are financial ... Read Full Answer >>
  2. What are the differences between a home equity line of credit (HELOC) and a home ...

    One of the great advantages to homeownership is the equity you can build and realize over time. Though you may have a nice ... Read Full Answer >>
  3. What's the difference between a secured line of credit and an unsecured line of credit?

    A line of credit is a lending arrangement between a financial institution (usually a bank or credit union) and either a business ... Read Full Answer >>
  4. What are some examples of a good time to take out a home equity line of credit (HELOC)?

    A home equity line of credit is a loan product that allows you to use funds from an account as needed, up to a specified ... Read Full Answer >>
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    A debt consolidation plan that pays off the loans debt collectors and creditors are calling about does stop them from calling. ... Read Full Answer >>
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    In most cases, credit card consolidation is a wise decision if you are able to get a lower interest rate with the new company ... Read Full Answer >>
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