A HELOC is a Home Equity Line of Credit and can be a convenient way to deal with big one-time expenses without draining your checking account.

Essentially, it allows you to borrow money with your home as the collateral. 

Unlike a mortgage loan, which gives you a certain amount of money all at once, a HELOC is a loan set up as a revolving line of credit and has a maximum “draw,” meaning you can take money from your HELOC, as little or as much as you like (up to the maximum), at any time during the HELOC’s “draw” period.

How much you money you can access, called the limit of your draw, is determined by the current equity you have in your house and your credit history.

Draw periods vary, as do the repayment periods and terms. Some only require you to pay interest during the draw period and then allow you to pay back the loan principal over a set period of years; others require payment in full at the end of the draw period. You usually draw money from your HELOC with a check or sometimes, a HELOC-specific credit card.

Interest on HELOCs operates differently as well. Instead of being calculated a monthly, it’s calculated daily since the balance changes often, due to draws and any early repayments. And all HELOC’s are classified as Adjustable Rate Mortgages, meaning their interest rates change, for better or for worse. But, since you’ve put up something as valuable as your house as collateral, the rates for HELOCs are often lower than rates for other ARMs.

Most HELOC are used for major costs such as home updates and repairs, college tuition or large medical bills, and while they offer some serious advantages, they are not without risk. 

Pros

  • No matter what your maximum draw number, you take only what you need, when you need it and only pay interest on what you draw.
  • Often low upfront costs compared to other types of loans.
  • Often lower interest rates than credit cards or other unsecured loans.

Cons:

  • When interest rates go up, the rates on HELOCs do too, and they go up a lot faster than they do on other loan types.

MAX offers several HELOC options, all with competitive rates and easy-to-understand terms. Learn more about each of MAX’s home equity products and compare their features to find the one that’s right for you.