A HELOC (Home Equity Line of Credit) is a home equity loan and functions much like a credit card. It’s essentially a line of credit that can be drawn on as you repay the total loan.
One of the biggest perks of homeownership is the ability to build equity over time and homeowners can use that equity to secure low-cost cash in the form of a “second mortgage”. This can come in the form of either a one-time loan or a home equity line of credit (HELOC). Home equity can be a great source of value for homeowners to access cash for renovations, large purchases, or alternative debt repayment. Home equity loans and lines of credit are secured against the value of your home equity, so lenders may be willing to offer rates that are lower than for most other types of personal loans. A home equity loan comes as a lump sum of cash, often with a fixed interest rate. A home equity line of credit is a revolving source of funds, much like a credit card, that you can access as you choose. There are advantages and disadvantages with each of these forms of credit, so it’s important to understand their pros and cons before proceeding.
The interest rates on HELOCs are often variable and tied to an index such as the prime rate.
- Should I borrow from home equity?
- If so, how much should you borrow?
- Will you be better served by taking out a lump-sum equity loan or a HELOC?
- How long will it take to repay the loan?