What home equity line of credit (HELOC) interest rate depends on and how are HELOCs used?


A home equity line of credit with adjustable or fixed interest rate is becoming increasingly popular among homeowners. HELOCs can be used much as a credit card - an open end credit line with interest due only on the spent amount. Or as a second mortgage - receive one lump sum and follow the repayment schedule. Often home equity lines of credit are used to refinance a first mortgage.

HELOCs will most often have variable interest rate tied to some prime rate plus margin. It will adjust several times a year, or even every month, or will be calculated daily. A HELOC will usually have a draw period of up to 10 years and a repayment period of up to 10 years. Sometimes a home equity line of credit will demand a balloon payment at the end of the draw term, regardless of the interest rate.

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