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Credit Loan > Home Loans > The HELOC Home Loan
HELOC stands for "Home Equity Line of Credit". This differs from a traditional mortgage in that the entire amount of the loan is not advanced to the borrower all at once, but the amount of the loan is instead available as a line of credit. The amount of the HELOC is based on the home equity that is available, which is the appraised value of the home minus the amount of principal that is owed on a mortgage. A HELOC does not have to be for the entire amount of available equity. In some cases it can only be a certain percentage of the equity, or there may be a limited amount that is available for the specific home loan.
Usually, there are no restrictions on how the money from the HELOC is used, but often home owners will take out a HELOC to finance repairs or remodeling for the property. It is also sometimes used as a tool to manage finances by paying down debts that are charging a higher rate of interest than the new loan, and do not have deductible interest. It is easy for home owners to get themselves into trouble with a HELOC, for instance by using the proceeds to finance risky investments, or using it to pay for living expenses long term. If a home owner of retirement age plans to remain living in the home and needs help with day to day living expenses, a Home Equity Conversion Mortgage (HECM), or reverse loan, is a much better alternative, and is a very different type of loan.
Many lenders have recently frozen HELOC loans because the available equity is based on the value of the home, and when home prices drop like they have in the U.S. this type of home loan becomes much riskier. Fewer lenders are currently offering HELOCs because of this, but in certain situations are still able to do this type of loan. Because the interest rate on a HELOC is variable and the lender has the right to freeze the line of unused credit, there is a certain amount of risk to the borrower as well. Borrowers should carefully consider their options before opening a HELOC.
Home Equity Line of Credit
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Usually, there are no restrictions on how the money from the HELOC is used, but often home owners will take out a HELOC to finance repairs or remodeling for the property. It is also sometimes used as a tool to manage finances by paying down debts that are charging a higher rate of interest than the new loan, and do not have deductible interest. It is easy for home owners to get themselves into trouble with a HELOC, for instance by using the proceeds to finance risky investments, or using it to pay for living expenses long term. If a home owner of retirement age plans to remain living in the home and needs help with day to day living expenses, a Home Equity Conversion Mortgage (HECM), or reverse loan, is a much better alternative, and is a very different type of loan.
Many lenders have recently frozen HELOC loans because the available equity is based on the value of the home, and when home prices drop like they have in the U.S. this type of home loan becomes much riskier. Fewer lenders are currently offering HELOCs because of this, but in certain situations are still able to do this type of loan. Because the interest rate on a HELOC is variable and the lender has the right to freeze the line of unused credit, there is a certain amount of risk to the borrower as well. Borrowers should carefully consider their options before opening a HELOC.
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