HELOC Loan Facts

A HELOC loan is also known as a Home Equity Line of Credit. At the collateral of the equity of your house, a HELOC loan is granted over a specified amount of time. What makes this loan different? All of the money is not disbursed all at same time. Usually the line of credit is the one used accordingly, to make sure it wouldn’t exceed the maximum amount of loan. It’s just like using your convenient credit card only that stops you from making purchases when you’re at the limit.

You will know what your loan amount is once you have reached the so called “draw period”; that is basically the time that you can use the money. Usually the draw period is between 2-25 years. What you have used against the HELOC loan will be your payment and you may only pay the interest on a monthly basis if you stayed within the minimum.

But then, you can decide how much and when to pay back if you have exceeded the minimum. Sounds great? However, note that once the draw period of 2-25 years is over, you must meet the full loan obligation. This can be done in two different ways, either in a balloon type payment or you can pay according to a loan amortization schedule.

The interest rate of HELOC varies according to the prime rate; it is different from a conventional loan which means that the loans’ interest will change. Keep in mind that not all lenders calculate margins in the same way. The amount that borrowers pay differs between the prime rate and the interest rate.

Since the interest is paid in tax deductible on both federal and state taxes, HELOC mortgages became really popular especially in the U.S. More and more people seek for this type of loan also because of its flexibility. Borrowers can pay it back whenever and however they choose to do so.

However, it is a given that a loan is a loan! (If you know what I’m saying) Regardless of the flexibility, this loan must be paid back and it’s as simple as that. Don’t forget that they have your home as collateral and you will face foreclosure if you fail to pay. It’s a must to remember if you are planning on a HELOC loan. 

If you are having second thoughts about a HELOC loan or you’re not sure what to decide on, why not take the advantage of free consultations with experts? You can search the WEB for consultants and get free consultation.