Home Equity Line of Credit (HELOC)
🕛 2 minute read
A home equity line of credit (HELOC) is a secured form of credit available to individuals purchasing property with 20% or more towards the down payment or those who already own property with at least 20% of available equity. The lender uses your home as a guarantee that you’ll pay back the money you borrow.
Home equity lines of credit are a revolving credit and are a variable-rate product by nature, meaning your HELOC interest rate will fluctuate based on the prime rate. You can borrow money, pay it back, and borrow it again, up to a maximum credit limit.
Types of home equity lines of credit
There are two main types of home equity lines of credit: one that’s combined with a mortgage, and one that’s a stand-alone product.
Home equity line of credit combined with a mortgage
Most major financial institutions offer a home equity line of credit combined with a mortgage under their own brand name. It’s also sometimes called a readvanceable mortgage.
It combines a revolving home equity line of credit and a fixed term mortgage.
You usually have no fixed repayment amounts for a home equity line of credit. Your lender will generally only require you to pay interest on the money you use.
The fixed term mortgage will have an amortization period. You have to make regular payments on the mortgage principal and interest based on a schedule.
The credit limit on a home equity line of credit combined with a mortgage can be a maximum of 65% of your home’s purchase price or market value. The amount of credit available in the home equity line of credit will go up to that credit limit as you pay down the principal on your mortgage.
Important to note: Home Equity Lines of Credit (HELOCs) are demand loans. A demand loan, also known as a callable loan or demand note, is a type of loan where the lender can request repayment of the outstanding balance at any time, usually without prior notice. In the context of Home Equity Lines of Credit (HELOCs), this means that the lender can call for full repayment of the credit line at any point, giving borrowers flexibility in managing their funds but requiring them to be prepared for potential repayment demands.
If you have any questions or want to begin the process, don’t hesitate to get in touch!
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