HOW A HELOC WORKS

A HELOC is a line of credit that uses your home as collateral. The line of credit is based on a percentage of the value of your home. The more your home is worth, the larger the line of credit. Of course, the final line of credit you receive will take into account any outstanding mortgages you might have. This includes first mortgages, second mortgages and any other debt you have secured by your home.

A HELOC works similar to a credit card in that you are approved for a set amount of credit to use (based on the equity in your home), but you do not have to use it all at one time, the credit is available to you during a 10 year draw period.

During the draw period, you’re only required to make monthly interest payments on the money that you borrow — not on the entire credit line. However you also have the option to make principal and interest payments in order to repay your debt faster.

A HELOC interest rate is variable and adjusts with the Prime Rate. The Prime Rate Index used is the Wall Street Journal prime rate as published on the last business day of each month.