How does a HELOC work?
"You could say that a HELOC is something like a credit card but with low rate, interest only, tax deductible payments."
-Mr. HELOC
A HELOC is a form of revolving credit. The account has a pre-set credit limit. Whenever you need money you use a special check, or other means, to access the funds. The following month you receive a statement showing you how much you owe. Your minimum payment is based solely on the amount drawn, not the entire amount of the credit line, like other loans.
HELOCs usually have a fixed period during which you can borrow money, such as 10 years. During this time, payments are typically Interest Only. Since you can withdraw funds up to your maximum credit line amount at any time during the draw period, a HELOC is not unlike a credit card. As you pay back the outstanding balance every month, your available funds increase. The monthly payment amount adjusts as your outstanding balance changes.
There is no annual fee. You can pay off a HELOC at any time, make payments only on the outstanding balance and can access the money repeatedly as you need it. A HELOC is one of the most flexible financial tools available to a homeowner.
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