A home equity line of credit, commonly known as HELOC is a specific type of home equity loan. It allows borrowers to take out an equity loan or receive a line of credit in exchange for equity in their home. The equity is calculated based on the remainder owed on the mortgage loan in comparison to the property’s current value. As such the property is used once again as collateral for the loan and a second lien is established.
Many borrowers prefer a HELOC as opposed to other loan types. This is due to the fact that they usually offer very competitive interest rates in comparison to other types of loans. Borrowers will likely end up paying less for borrowing the same amount of cash from a credit card company for example.
Like mortgages and many other types of loans, the interest rate given will depend on a borrower’s credit score and history. The higher the credit score, the lower the interest rate.
There is a big difference between a HELOC and a home equity loan. The biggest of which tends to be the amount the borrower can borrow. Home equity loans usually only offer large lump sum amounts with the minimum being $35,000 for many lenders. With HELOC’s there is a revolving credit line for a preapproved amount of money. Home equity loans may be preferable when a borrower has a one-time expense and knows how much funds they need. HELOC’s are more flexible and are more suitable for a borrower who may need to access funds at different times.