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Home Equity Line of Credit (HELOC) - The Basics
A home equity line of credit is typically (but not always) an adjustable rate loan. This means that the interest rate fluctuates based on the index rate plus some margin. For example many large lenders use the Prime Rate and the index for adjustable loans. The lender will add a margin of a few points to the prime rate to determine the rate of the HELOC. When the prime rate moves up or down the rate of your loan will track accordingly. The added margin insures that the lender makes money on the spread between prime and your rate. The size of your margin depends on your credit score and credit history. Because the HELOC loan is secured by your home, failure to pay will result in foreclosure (loss of your home). Tax Advantages The interest paid on HELOC's is typically tax deducible. This means you can lower your annual taxable income by the amount of interest paid over the course of the year. See Also:
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