What is a home equity line of credit?
Answer:The HELOC, or the so called home equity line of credit is what an open-end line of credit is. It is a loan using your home as collateral and you are allowed to draw on it until the credit limit is exhausted. The simple interest calculated on a HELOC is usually completely tax-deductible. If you partially repay a HELOC, or a home equity line of credit, you will be allowed to use it again.
Many people will use a home equity line of credit as a resource to cover expenses for different items - could be tuition fees, medical bills, or even a luxurious vacation.
HELOCs' rate is tied to a prime rate plus some margin. They are usually adjusting the first day of every month, going after the prime rate. A home equity line of credit is in essence an ARM adjusting monthly. If you are shopping for a home equity line of credit, you are not interested in the APR. Rather, you have to ask about the margin to calculate if you should take it. Usually, a HELOC will be advertised with a starting teaser rate which will not adjust for several months.
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