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What Is HELOC?

By Cindy Philpot

Does HELOC have anything to do with helicopters? No, but you could feel like you are flying high. It means Home Equity Line of Credit. It is a loan like a loan for a mortgage. There is a difference in that the mortgage is one amount and this credit is an amount that has been established for you to draw from.

The interest rate is prime plus. This choice could sound very appealing to some. Your rate for your mortgage is higher so it may be attractive to you to borrow on this credit to pay off your mortgage so that your interest payment would be drastically reduced.

This may not be the case in the long run. If your credit amount is not going to be paid off for a number of years the interest may turn out to be very expensive for you. Perhaps your rate would be low now but prime has always been very volatile and you could end up paying much more interest than the mortgage would have cost.

When you decide you want this type of credit be sure to ask some of the right questions. Most of them have to do with interest rate. Prime is variable but the prime rate varies each day. However, the prime plus rate of interest on this type of loan is not divulged very easily. One must ask. If you do not you may be in a situation that this credit is costing you a great deal of money.

Most borrowers will offer you the highest amount possible. Your interest payments are what they are looking for. They will possibly have a minimum to draw, so inquire. Should you not need the money then you certainly do not want to pay interest on it.

There are fees as in any other loan but there are some unique fees that you must be sure to factor in. An annual fee is usually charged. Often the lending institution will waive this your first year. When you cancel you will have to pay a cancellation fee, which may be waived depending on the amount of time the account stayed open. Before making this decision be sure you ask certain questions. Are they offering you an special rate for an introductory period of time, what is the margin, what is the minimum amount they expect you to draw, what is the average balance, are there upfront lender and third party fees, is there an annual or cancellation fee?

When considering this choice you should remember that this loan is given to you using your home as equity. It is possible that with a turbulent economy the approved amount will not be honored by the lender because your property value has decreased. Never forget this is a secured loan, which puts your property at risk.

Visit Banking Guide of Canada to learn more about different HELOC Loans.

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Article Citation
MLA Style Citation:
Philpot, Cindy "What Is HELOC?." What Is HELOC?. 25 Aug. 2010. 21 May 2015 <>.

APA Style Citation:
Philpot, C (2010, August 25). What Is HELOC?. Retrieved May 21, 2015, from

Chicago Style Citation:
Philpot, Cindy "What Is HELOC?"

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