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.
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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.
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