minifairytalehouse1_042404.jpgA HELOC, or Home Equity Line of Credit, is a type of a loan program that entails the lender to provide a maximum amount of loan to a borrower in an approved term. However, in exchange for the maximum amount of loan, the borrower has to make his or her house as the collateral. HELOC involves the “line of credit” on the part of the borrower. If the loan’s maximum balance is already determined by the lender, the borrower can have the option to draw on his or her line of credit.

Some of the reasons of why the HELOC loan program has become popular are as follows: It has a tax-deductible mortgage interest. It has an existing low interest rate plus the fact that the market has fair inflation. In the United States, there has been an increased in the number of HELOCs retail sales stations. Through this, HELOCs became more accessible to the consumers especially to the far-flung areas. Majority of these HELOCs retail sales stations are linked to the local banking establishments.

HELOC varies from the usual home equity loan. This is because HELOC works like a credit card wherein a borrower is assigned a credit limit. For the duration of the so-called draw period, which is usually 5 – 25 years, the fund of a HELOC loan can be solicited on demand. In general, a borrower has to pay the required minimum monthly payments. This expense is in the form of an interest only payment. During the draw period’s closing stage, the borrower has to repay the loan’s total principal. This can be done in either one of the two methods through a lump sum balloon payment or through the schedule of the loan’s amortization.

An additional distinction HELOC has over the usual home equity loan is through its interest rate. HELOC’s interest rate is changeable and is based primarily on an index, which includes the prime rate. The popularity of the HELOC loan program began in the early 2000. Consumers were attracted on its deductible interest, which effectively decreases the price of borrowing money. Moreover, HELOCs offer more flexibility as compared to the other types of loan programs. Its suppleness can be both applied on its pay back schedule and on demand borrowing. Several experts in the loan and mortgage industry have stated that HELOC’s popularity was due to its clean image and practical applications for the mainstream consumers.

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