HELOC

Also a means of borrowing against the homeowner’s equity in a home, a home equity line of credit—commonly known as a HELOC—is a line of credit that functions much like a credit card. With a HELOC, the borrower will receive approval for a credit limit and a time frame (called the “draw period”) during which funds can be withdrawn and repaid. During the draw period, the borrower will pay interest only on that which is borrowed. Once the draw period is concluded, no more funds can be withdrawn and repayment of both principal and interest will begin. (Unlike the fixed rates typical of a HELOAN, most HELOCs have variable interest rates which means that both the interest rate and monthly payment can vary over time.) The flexibility of HELOCs makes them ideal for larger sums or smaller amounts as needed for home renovations, medical bills and so on.