The Language of the Loan: HELOC

Image by Michal Jarmoluk from Pixabay 







You’ve probably heard of a HELOC (pronounced ‘hee-lock’), even if you don’t realize it. It’s an acronym that stands for a Home Equity Line of Credit, and is also often referred to as a 2nd Mortgage.

Now, a lot of people hear the term 2nd mortgage and think it’s synonymous with financial trouble. But for the most part, the opposite is actually true. A HELOC can be an extremely useful financial tool, for the right borrower in the right financial situation.

Rather than simply borrowing a set amount of money, a HELOC lets you borrow UP TO a certain amount, with your home being your collateral. Think of it like a credit card; you have a credit limit which you can borrow against more than once, and can choose to pay all or part of your balance.








It’s not as complicated as you may think. You begin with what is known as a ‘draw period’, which typically lasts 5 or 10 years, depending on your lender. During this time, you can borrow from your HELOC, and then simply pay the interest on a monthly basis. Once the draw period is over, you’re paying principle and interest, just like your home loan.

The interest rate for a HELOC is determined by the current US prime rate, which is a foundation rate for pricing various short and medium term loan products. Without getting too into too much detail, one could say that if the prime rate is low, than your monthly payment will be low. If the prime rate is high, your monthly payment will be high.

Just what are the advantages? Well simply put - it’s money for you to use at your disposal. Buy a new car, pay for your child’s college tuition, or make some long overdue renovations to your home. The money is yours to use how you see fit.

Also keep in mind that HELOCs often have lower interest rates in comparison to other types of debt. You don’t have to pay any closing costs. And when the balance on your line of credit is zero, guess what? Your monthly payment is also zero.

As always, you need to speak with your Midwest Lending Mortgage Professional before heading down this path. Call us today to see if a HELOC is the right product for you!