by Adam Ciboch
HELOC is an acronym that stands for home equity line of credit. Unlike more traditional home equity loans, with a HELOC not all of the money is advanced to the borrower. With a HELOC, a line of credit is established and the borrower can take out sums provided that they don't go over the credit limit much in the same fashion as a credit card.
Different than credit cards, home equity loans are not used for daily expenses and are saved for important events such as education, home renovations or medical bills. Specifically, a home equity line of credit is a loan in which the lender agrees to lend a maximum amount within an agreed period (called a term), where the borrower's equity in his/her home turns into the collateral for the loan.
The interest charge on a HELOC is variable, unlike a conventional loan. Because of the fact that the determining factor in formulating the rate of interest is the prime rate index, it is imminent that the fee will change periodically. No lenders calculate the margin of a home equity line of credit the same, so this means that rates will differ significantly from lender to lender.
People in the lending industry consider a HELOC to be the same as a second mortgage. HELOCs were quite popular ten years ago in part because under some circumstances, interest payments were deductible under federal and some state laws. Several borrowers are drawn to HELOC because it offers repayment and borrowing strategies that are flexible.
Despite the minimum monthly payment obligation which is usually based on interest, any size payment greater than the minimum but less than the total amount is permitted. During the "draw period" of a HELOC loan, which is usually between 5 and 25 years, funds can be withdrawn. Final repayment of the loan occurs when the amount of the loan plus the interest is repaid to the lender.
Conventional mortgages are usually a non-recourse loan, which means they are secured by a promise of collateral, which is the home itself, in the case of a home equity loan. Non-recourse loans have no legal responsibility, but with a HELOC loan the borrower can be liable. A recourse debt in the case of a foreclosure proceeding can make a borrower personally liable. - 41115
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New Unique Article!
Title: How Does A HELOC Differ From Other Home Equity Loans?
Author: Adam Ciboch
Email: wizard@toprockinternet.com
Keywords: home equity line of credit,home equity loans,lines of credit,personal loans,loans,credit,finance,real estate,business
Word Count: 382
Category: Finance:Credit
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