HELOC stands for Home Equity Line of Credit and is a type of loan set up as a line of credit you can get from a lender. The maximum amount that you’ll be able to borrow is based on the estimated value of your home, or on the amount of equity in your home. You receive checks or a card connected to your loan account to draw from this line of credit to use as you need it, up to the maximum amount.
You can even use a HELOC for debt consolidation, often at a lower interest rate than a credit card.
How does a HELOC work?
A HELOC is a type of loan that provides you a line of credit based on your credit history and the estimated value of your home.
Some other important features of a HELOC:
- You're approved for a total line of credit, but your monthly payment will be based only on the amount you have drawn.
- Like a credit card, you’re only obligated to pay back the amount you’ve used.
- You can use checks or a credit card linked to your HELOC to pay for what you need. When you need it.
- The interest paid on a HELOC is often tax deductible. Please consult a tax professional to see if this applies to your situation.
What should you look for when shopping for a HELOC?
When deciding whether to apply for a HELOC, look for the plan that’s the best fit for you. Be sure you fully understand the agreement, the repayment terms, and various options.
Two things to consider are:
- HELOC annual percentage rate (APR)
- Upfront cost of taking out a HELOC
Keep in mind that typically the APR for a home equity line is solely based on the interest rate. Many lenders do not include fees and charges in the origination of a HELOC.
Also be sure to compare a HELOC to other loan types. You’ll find that a HELOC from Nationwide offers lower variable interest rates compared to many other financing options.
How will you repay your HELOC?
Before applying for a HELOC, have a plan for repaying the money you borrow. There are flexible repayment options available during the repayment period.
Ultimately, a HELOC features attractive interest rates that are often lower than a credit card. When evaluating what you need the loan for, you might decide that a credit line is a better option than a lump sum loan, like a second mortgage. By doing your research, you might find that a HELOC is right for you.