What is a HELOC?

A HELOC is a Home Equity Line of Credit. HELOC’s are a little bit different than your typical amortized mortgage or even a home equity loan.

A good analogy is that it’s like a credit card attached to a portion of your home’s equity. It lets you draw from the equity of your home as a line of credit whenever you’d like. That is, as long as it’s not maxed out.

Most HELOCs are interest-only for some period of time. That means that the minimum payments required only consist of interest. However, you can typically pay extra. The majority of HELOCs are also adjustable rate which means their interest rates can fluctuate with the market, much like most credit cards. As property owners pay down their HELOC they can pull out money as needed, subject to the terms of that specific loan.

What’s the Difference Between a Home Equity Loan and a Regular Mortgage?

A home equity loan that isn’t a line of credit is typically a 2nd mortgage. 2nd mortgages are usually a smaller loan on top of your 1st mortgage. A home equity loan and a regular mortgage are amortized. That means that overtime you’ll pay down your loan. You cannot pull out additional funds as well without getting a new loan or refinancing. Home equity loans might have a slightly higher rate, and less flexibility. However, there are many more fixed rate options for home equity loans, which limits the risky features of HELOCs.

Overall, HELOCs can offer great flexibility for borrowers who would like quick access to funds, but might pay it off over a short period of time. They can also make sense if you’re looking to pull cash out of your home, but already have an amazing rate on your first mortgage. We always compare multiple options with our borrowers to see what makes sense for you. Contact us today and we can review what makes most sense for your custom situation.