In the past year there have been an increased popularity of Home Equity Lines of Credit or HELOC. The primary reasons why the HELOC has gained popularity are: 1)increased revenue for banks as HELOC terms can be tied to Adjustable Rate Mortgages, 2) improved home values and stringent loan underwriting have enabled HELOC to become a “safer” product for banks, 3) and the improved economy has enabled consumers to look at alternative financing for home improvement, student loans, and large consumer purchases.
HELOCs are essentially large credit cards with a credit limit which can be charged or drawn upon and paid back within the loan terms. Each time the HELOC is drawn upon interest is charged. Some HELOCs are advertised with a very low interest rate which can increase or adjust to a higher normalized interest rate.
Educating yourself with any loan will enable you to know the benefits and costs. The HELOC can be a complex loan program as some features include multiple draws and repayment plans, fix rate option, interest only option, early termination fee, and the index and margin the interest rate will be tied to determine your Annual Percentage Rate.