Home equity line of credit, also known as HELOC, is a simple interest loan during the draw period. Monthly payments will vary, depending on the outstanding balance and fully indexed rate. Interest is calculated the day after principal payments are made.

Because the borrower pays interest only on the outstanding Home Equity Line of Credit balance, a substantial savings can be realized by paying the loan off early. Also, payments to the principal immediately reduce the monthly payment, potentially SAVING THE BORROWER HUNDREDS, OR EVEN THOUSANDS OF DOLLARS.

A Home Equity Line of Credit is a revolving line of credit, similar to a credit card. This means that during the draw period, the available credit can be used over and over again as the balance on the Home Equity Line of Credit is paid down. The borrower is given flexibility and control over the amount of money to borrow, since the borrower has a choice of either drawing the full amount of the credit line, or using the funds only as needed. As the borrower makes payments and reduces the outstanding balance, the line of credit is restored and available for use again.

Securing a Home Equity Line of Credit with the equity in the borrower's home makes it possible to offer larger credit lines, up to $500,000. In most cases, interest payments are tax deductible, unlike credit cards or personal / unsecured loans.

There are a variety of reasons that home owners take out a Home Equity Line of Credit. Such reasons include, debt consolidation, home improvements, education, automobile purchase, investments, vacations, business ventures, etc.

A draw period is the time frame in which the borrower can utilize the available credit on the loan. A draw is a periodic advance of funds against that line of credit. When the borrower makes a minimum payment during the draw period, funds are applied towards interest only, not principal.

The repayment period is the remaining term of the loan after the draw period. During the repayment period, the borrower can not draw down funds from the Home Equity Line of Credit. When the borrower makes a minimum payment during the repayment period, funds are applied towards interest and principal.

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