Home Equity Line of Credit - "HELOC"

The Home Equity Line of Credit, otherwise known as the HELOC, is one of the most flexible types of mortgage available today. Its most common use is to pull equity out of a house or other property without refinancing the first mortgage. They are easy to get, have relatively low (in many cases, zero) closing costs and currently very attractive interest rates.

HELOCs are built like a regular ARM - they are based on the Prime Rate (a financial index set by the U.S. Federal Reserve Board), and a margin set by the lender.

The margin will stay fixed for the whole time that you have your HELOC, but like any financial index, the Prime Rate can and most likely will vary. That means that your payment can go up or down with changes in the Prime Rate.

HELOCs can also be used to purchase real estate, not just pull equity out of it. They are very popular when financing 100% of the purchase price (we've even done purchases at 100% -- where the buyer put no money down -- and actually got money back at the closing table), and can either be your first or second mortgage. Perhaps best of all, HELOC minimum required payments are always interest only, keeping your payments as low as possible.

Today's HELOC rates can be priced as low as "Prime minus 50," which means at the Prime Rate (currently 6.25%) minus 0.50% -- or 5.75%.

Some HELOCs come with a fixed-rate conversion option, which means that you can convert all or a portion of the balance on your home equity line to a fixed-rate loan, with a principal and interest payment that cannot change when the Prime Rate does.

When getting a HELOC, make sure that you know what your margin is, what sort of termination fee there might be if you pay it off quickly and what the annual fees are.

Click here to get pre-approved for a home equity line of credit - HELOC