Home Equity Line of Credit is abbreviated as HELOC. This refers to a loan in which the lender agrees to lend a maximum amount within an agreed period. This differs from standard loans or a reverse mortgage because the borrower is not advanced the entire sum up front, but uses the line of credit to borrow sums totaling no more than the credit limit amount. A Home Equity Line of Credit in many ways is similar to a credit card. At closing you are assigned a specified credit limit that you may borrow up to.
A draw period usually lasts anywhere from 5 to 25 years and allows you to borrow funds as needed; and you're only required to pay back the amount you use, plus interest.
What's nice about the home equity line of credit is that often, you are only required to pay the interest until the end of the draw period. At the end of the draw period, you'll have to do one of the following:
* Pay back the full principal HELOC amount borrowed
* Pay a Home Equity Line of Credit balloon payment
* Pay based on a loan amortization schedule.
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