Home equity credit line of credit
HELOC is an acronym that stands for home equity credit line of credit. It is a credit line that is settled for a lender to lend a maximum amount in a given period. The collateral is the home equity of the borrower in the home that is a source for him to get a loan. Home equity credit is different from all other types of loans. It is unlike conventional loans. This kind of loan is taken on the basis of home equity because a home is the major asset in someone’s life.
In a home equity credit, a borrower cannot exceed the credit limit. He has to borrow the sum that is no more than a specific limit, just like a credit card. This type of loan is different from the rest because its interest rate is variable. The reason behind variability of interest rate is the change in the prices of home equity with the passage of time. It proves that interest rate varies from time to time.
History
Many people do not use home equity credit lines for common expenses. These credit lines are used only for the most important items. If a person is in the market for credit, this plan is usually the best option. Against the expected benefits, one should first weigh the price of a home equity line very carefully. If you cannot repay the amount that is taken or the amount of interest, there is a great risk that you may lose your home. Home equity credit is sometimes a loan that is revolving, meaning you use it as you would a credit card.
Features
Day-to-day expenses should not fulfilled from home equity credit lines. Through this home equity credit, one can be approved for a specific amount of loan. The first process is to set a home equity credit limit for the customer. This task is accomplished by a lender. How sincerely a borrower can repay the borrowed amount depends on various factors. The major factor is the source of income of the customer and the amount that is earned by him. Financial obligations of the customer, his credit history and debts are very important as well.
For a home equity credit, there is a specific period for which the loan is given. For example, 12 years is a credit limit, and the customer has to repay within this limit. This limit is also called a draw period. At the end of this specific period, if this amount is not repaid, the customer might be allowed to renew his credit line. In home equity credit, renewal plans have some limitations. One cannot take more money if he has not paid money within draw period. He can get it again after paying the previous loan.
Once a person is approved for home equity credit, he can borrow up to his credit limit. Special checks are used to draw an amount on your credit line. There are also some home equity credit plans that allow their customers to use credit cards.
