11th Nov 2009 by Burt Carlson
HELOC stands for Home Equity Line Of Credit. This loan is a variable rate loan that changes its rate each month and is adjusted based on the Prime Rate PLUS a Margin. Typically the Margins are anywhere from -1.00% to +4.00% or more. The Margin is based on the borrowers credit score, loan to value and type of property (primary residence, second home, etc.). The loan is interest only until sometime during the term when it converts to fully amortized so that the original balance is paid if full at the end of the term. The term could be as little as ten years or as much as 25 although the most common term is 15 years. There is normally an annual fee of a few hundred dollars or less and there may be a "termination fee". The borrower can pay more than interest in any month therby reducing the balance and possibly freeing up additional funds under the HELOC for future use.
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