What Are HELOC Loans?

Home equity lines of credit, or HELOCs, are loans secured by the equity in a borrower's home. The amount of the loan will depend on how much equity is in the home. There are specific terms and agreements that apply to HELOCs. If a borrower does not adhere to the terms and agreements there could be some fees and penalties.

Size

When a HELOC is taken out the borrower is assigned a credit limit. A borrower can borrow money up to the credit limit.

Time Frame

There are a number of terms usually ranging from five years to 25 years.

Payments

With a HELOC the borrower will be required to make a minimum payment, which is usually interest only. This helps a borrower have low monthly payments.

Principal

Payments larger than the minimum can be made if the borrower desires to do so. If the borrower makes payments greater than the interest payment they will be applied to the principal balance.

Variable Rate

HELOCs normally have a variable rate of interest that is tied to some index. During the term of the loan the rate will change. If the rate increases the monthly payments can increase.

Taxes

The interest paid on a HELOC can be deductible, according to federal and state income tax laws.

Resources

• Home equity line of credit