A home equity line of credit (commonly referred to as HELOC in short) is a second mortgage taken out against the equity of your home. Instead of being paid in a single lump sum check and then repaid in monthly installments like a traditional mortgage, a home equity line of credit works in a similar fashion to a revolving charge account such as a credit card. The amount of the home equity line of credit is the credit line and transactions against that line reduce the available credit.
Payments made to the HELOC replenish the available credit. Most banks may even issue a home equity line of credit Visa or Master Card which can be linked to the home equity line of credit account, making it seem even more like a credit card.
The one difference is that, while a credit card account is typically open-ended and will remain in force as long as the payments are kept current, a home equity line of credit has a maturity date after which the line can no longer be used and by which outstanding amounts has to be paid in full.
A home equity line of credit account can be a very good source of emergency funds or financing for home improvements, large purchases, or pretty much any purpose the borrower desires. Some people have used home equity line of credit funds as a source of capital for an investment, borrowing the funds at, say four percent interest and investing them in a mutual fund or bond paying some higher amount.
This can be a risky prospect, but can be lucrative if it pans out.
Whatever option that you choose, there is always a flip side to it. So work out the finances, see if you can square them off or make a profit out of using it. Ability to repay is something you cannot overlook. Otherwise, use this in times of emergency and do be discriminate when using an HELOC or you may end up with more debt than you can chew.
Payments made to the HELOC replenish the available credit. Most banks may even issue a home equity line of credit Visa or Master Card which can be linked to the home equity line of credit account, making it seem even more like a credit card.
The one difference is that, while a credit card account is typically open-ended and will remain in force as long as the payments are kept current, a home equity line of credit has a maturity date after which the line can no longer be used and by which outstanding amounts has to be paid in full.
A home equity line of credit account can be a very good source of emergency funds or financing for home improvements, large purchases, or pretty much any purpose the borrower desires. Some people have used home equity line of credit funds as a source of capital for an investment, borrowing the funds at, say four percent interest and investing them in a mutual fund or bond paying some higher amount.
This can be a risky prospect, but can be lucrative if it pans out.
Whatever option that you choose, there is always a flip side to it. So work out the finances, see if you can square them off or make a profit out of using it. Ability to repay is something you cannot overlook. Otherwise, use this in times of emergency and do be discriminate when using an HELOC or you may end up with more debt than you can chew.
