Home Equity Line Of Credit - HELOC

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Equity Stripping

    The process of reducing the overall equity in a property in order ...
  2. Home Equity Conversion Mortgage ...

    A type of Federal Housing Administration (FHA) insured reverse ...
  3. Mortgage Accelerator

    A type of mortgage loan program popular in the United Kingdom ...
  4. Bank Confirmation Letter - BCL

    A letter confirming that a line of credit has been secured from ...
  5. Equity

    1. A stock or any other security representing an ownership interest. ...
  6. Mortgage Equity Withdrawal

    The amount of equity that consumers withdraw from their homes ...
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 >>
  5. Will debt consolidation stop debt collectors and creditors from calling me?

    A debt consolidation plan that pays off the loans debt collectors and creditors are calling about does stop them from calling. ... Read Full Answer >>
  6. Is it wise to consolidate credit card debt?

    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 >>
  7. What does a cut in interest rates mean for the stock market?

    When the next Federal Reserve meeting is expected to bring interest rate cuts or increases, it is wise, as a stock investor, ... Read Full Answer >>
Related Articles
  1. Credit & Loans

    The Importance Of Your Credit Rating

    A great starting point for learning what a credit score is, how it is calculated and why it is so important.
  2. Credit & Loans

    How HELOCs Can Hurt You

    A home equity line of credit is a convenient way to borrow money. But, there are things to be cautious about before you get into trouble.
  3. Home & Auto

    Reverse Mortgage Pitfalls

    Before tapping your home equity, find out what can go wrong.
  4. Options & Futures

    Home-Equity Loans: What You Need To Know

    We shed light on why consumers decide to use this form of debt and whether it is a good alternative.
  5. Home & Auto

    Is A Reverse Mortgage Right For You?

    Home equity can be a viable financing alternative, but it depends on how you spend the funds.
  6. Home & Auto

    Equity Stripping Leaves Creditors Empty-Handed

    Add additional debt to your real estate assets to keep the creditors at bay.
  7. Credit & Loans

    Protect Yourself From HELOC Fraud

    Identity thieves are using home equity lines of credit to commit their crimes.
  8. Home & Auto

    How the Fed Affects Reverse Mortgages

    An in depth look at how the Federal Reserve affects reverse mortgages.
  9. Investing

    Where Are Real Estate Stocks Heading?

    We summarize five economic reports that investors should monitor monthly to keep them informed of where real estate and its related stocks are heading.
  10. Home & Auto

    Protect Yourself Against Reverse Mortgage Scams

    You could lose not only money, but also your home, if you fall for these schemes.

You May Also Like

Hot Definitions
  1. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  2. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  3. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  4. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  5. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  6. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!