HELOC stands for “Home Equity Line of Credit”. This particular line of credit utilizes your primary residence as a type of collateral, or a form of security for the debt that you acquire. The amount that is typically available for homeowners is the difference between any of the debts that are currently secured by your home, such as the balance of your current mortgage, and the market value of your home. HELOC loans are specially-designed revolving forms of credit. Instead of having a fixed dollar amount, HELOC loans are initially created as a line of credit for maximum draw.

Draw Period
All HELOC loans have a pre-determined draw period; that is, you are able to use the credit line by borrowing against in and you will receive a repayment plan, which will outline when the draw or draws that you made must be repaid. In most instances, a draw period may be as little as 5 years or even 10 years; however, there are other cases in which a draw period may be as long as 20 years. Initially, you will only be required to pay interest on that which you have borrowed.

As time progresses, you will be required to make payments on the principal, which are equal to the balance that is present at the end of the draw period. This is divided by the number of months that were outlined in the initial repayment period. There are many HELOC loans that require the balance to be repaid, in full, at the end of the initial draw period. If you obtain this type of HELOC loan, in most cases, you will need to refinance. During the draw period, you may borrow as much as you like. Following the draw period, you will be required to conduct repayment.

The Benefits
There are numerous benefits associated with HELOC loans. The most common include the following:

  • HELOC loans result in lower monthly payments than other types of loans, and credit cards. By consolidating your debt, you have the ability to save interest on the debts that you have.
  • When making payments on HELOC loans, you may find that the interest that is paid is completely tax deductible.
  • When obtaining a home equity line of credit, you will find that you do not have to pay any type of closing costs; however, it is important to be aware that you may have to pay a special type of origination fee and an annual fee.

HELOC loans are simple to qualify for and simple to understand. These types of loans provide convenience for your funding various types of needs – such as paying off those expensive credit cards, making necessary home repairs and/or improvements, or paying for your education. You simply draw the amount that you require and only pay the interest that is outlined for that amount. Somerville National Bank is now offering HELOC loans. If you would like to learn more about our loans, or would like to learn about our other banking options, simply contact a branch near you by clicking HERE.