Regulations on Home Equity Lines of Credit

A home equity line of credit, or HELOC, is a loan taken out against the amount of equity in a home. A HELOC is different than a traditional home equity loan and has different fees, requirements and regulations.

Features

A HELOC offers the borrower a revolving credit line similar to that of a credit card. He can draw from it whenever and for whatever amount he chooses, up to the amount of the loan.

Interest Rate

A HELOC typically has a variable interest rate, which must be based on a publicly available index like a U.S. Treasury bill rate. Also, HELOCs must legally have a cap on how high the interest rate can go.

Interest Charges

Like a credit card, interest charges on an outstanding home equity line of credit balance are calculated daily.

Fees

Many HELOCs don't require origination fees or points, but do require an appraisal and several other standard closing fees. Lenders may also charge yearly loan fees.

Collateral

In a home equity line of credit, the borrower's house is used as collateral. Failure to make payments can lead to foreclosure.

Loan Time Frame

Lenders will often set a 5- or 10-year draw period for a HELOC after which they require repayment or allow for renewal.

References

• The Federal Reserve Board: What You Should Know about Home Equity Lines of Credit
• Mortgage Fit: Home Equity Line of Credit
• Mortgage Loan Education: Heloc Facts

Resources

• The Consumer's Guide to Heloc Loans