Important Details Pertaining To HELOC Loans
HELOC means a kind of home equity line of credit
. One of the major differences lies in the fact that with the average home equity loans, all of the money is available outright. With a HELOC, a line of credit is established and the borrower can take out sums provided that they don't exceed the credit limit similar to a credit card.
Unexpected medical bills, home renovations and education, rather than day-to-day expenses, are the primary reasons people use home equity loans. The borrower's investment in his or her home is the main collateral for a home equity loan in which a term period is determined within which the borrower must pay back the amount in full.
The interest charge on a HELOC is variable, not like a traditional loan. The prime rate index is normally the determining factor for formulating the interest rate and it often does vacillate over time. An additional significant factor concerning the different ways lenders calculate the margin, is the difference between the prime rate and the interest rate the borrower will actually pay.
Those in the lending industry consider a HELOC to be the equivalent of a second mortgage. Because of the fact that some ten years ago the interest paid on a HELOC was deductible under both federal and some state laws, they became quite popular. Many borrowers are attracted to HELOC because it offers repayment and borrowing strategies that are versatile.
A debtor can make any size payment as long as it is less than the total amount and at least the minimum requirement, which is normally evaluated on the basis of the rate of interest. During the "draw period" of a HELOC loan, which is typically between 5 and 25 years, funds can be taken out. Repayment consists of the amount taken out plus interest.
Traditional mortgages are normally a non-recourse loan, which means they are protected by a promise of collateral, which is the home itself, in the case of a home equity loan. Non-recourse loans have no liability, but with a HELOC loan the borrower may well be legally responsible. A recourse debt in the case of a foreclosure proceeding can force a borrower to be personally responsible.
Important Details Pertaining To HELOC Loans
By: nptipray2010
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