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Home Equity Credit Line

Use Home Equity to Establish Credit

A Home Equity Line of Credit (HELOC) is a type of second mortgage that is actually a revolving credit line similar to that of a credit card. Because HELOCs are secured by your home, they commonly offer high credit limits, lower interest rates and the interest is tax deductible.

Why HELOC:
HELOC Benefits

  • Tax deductible
  • One set amount available to you
  • Determine how much you need and when you need it

 

piggy-bankHELOC Requirements

  • Must meet the required credit ratings
  • Must meet the required debt-to-income ratio
  • Must have equity in the subject property

 

How HELOC Works

Lenders set the HELOC limits and then award the loan. Afterwards, the loan enters the draw period.

  • The draw period can be a span for 5 to 20 years depending upon which program they fit into
  • The borrower will receive a check book and a special credit card that is used for withdraws
  • When the money is taken out the borrower will receive a monthly bill and must make a minimum payment (sometime interest only)
  • When no money has been taken out there will be no money owed

At the end of the draw period which is usually 10-20 years, it will enter in a stage of the loan called “repayment period.” This is when the borrower cannot withdraw from the loan any longer and will receive a fixed payment schedule for repayment.