Home Equity Line of Credit (HELOC)

If you need to borrow money to pay off debts or make a major purchase, a home equity line of credit (HELOC) can be useful. A HELOC is a form of revolving credit secured by the equity in your home. This is an open ended loan that can be paid down or charged up for the term of the loan, much like a credit card. The interest rate can fluctuate (even monthly) and is typically tied to the prime rate.

When you take out a HELOC, you could pay for many of the same expenses as when you financed your original mortgage, such as an application fee, title search, appraisal, attorneys' fees, and points (a percentage of the amount you borrow).

Most HELOCs have a period (5, 10, even 20 years) during which you can borrow money. Typically, you will use special checks or a credit card to draw on your line. You will be required to make a minimum payment each month – usually the interest that accrued during the draw period. However, the interest you pay is usually tax deductible, but always check with your CPA about that. At the end of your "draw period," you will be required to repay or amortize the remaining balance of the loan, making monthly payments on the principal and interest.