How a Home Equity Line of Credit (HELOC) Works for You
A Home Equity Line of Credit has all the benefits of a home equity loan with the convenience of a credit card. You borrow money from a lender, using the equity in your home as collateral.
If your home is worth 250,000, and you owe $100,00, you could have a line of credit as high as $150,000 (the difference between what your home is worth and what you owe.)
With a Home Equity Line of Credit or HELOC, you take out some or all of the money available to you in your credit line, and pay it back in monthly payments over a long period of time – often 10 years. As you pay the money back, it becomes available to borrow again. You can borrow against your line of credit as often as you like, for any purpose. After a set number of years, you have to stop borrowing, and only make payments.
A HELOC is essentially using the equity in your home as a credit card, only with much better terms. The interest rates on a HELOC are usually only slightly higher than the going rates on a first mortgage. Credit cards charge 13% to 28% and a home equity line of credit may charge around 3% – 4%. And the interest is tax deductible.