HELOC (Home Equity Line of Credit)
Definition
A revolving credit line secured by your home equity, allowing you to borrow up to a set limit and repay as needed.
A Home Equity Line of Credit is a revolving credit facility that uses your home's equity as collateral. It works like a credit card: you have a maximum credit limit and can borrow, repay, and borrow again during a draw period that typically lasts 5 to 10 years.
HELOC interest rates are usually variable and tied to the prime rate plus a margin. During the draw period, you may only be required to make interest payments. After the draw period ends, you enter the repayment period where you pay both principal and interest over 10 to 20 years.
HELOCs are commonly used for home improvements, debt consolidation, or emergency funds. The interest may be tax-deductible if the funds are used for home improvements. However, because your home is collateral, defaulting on a HELOC could result in foreclosure.
Related Calculators
Related Terms
Equity
financeThe value of ownership in an asset after subtracting all debts and liabilities associated with it.
Variable Rate
financeAn interest rate on a loan or investment that changes periodically based on market conditions or a benchmark index.
Prime Rate
financeThe interest rate that commercial banks charge their most creditworthy customers, serving as a benchmark for many consumer and business loan rates.
Collateral
financeAn asset pledged by a borrower to a lender as security for a loan, which can be seized if the borrower defaults.
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