HELOC Loan Modification - Getting to Understand it Better

By Chimezirim Chinecherem Odimba
A HELOC loan, formally known as a Home Equity Line of Credit, is granted for a specified amount of time and the collateral is the equity in your house. Here is where the difference comes in with a HELOC loan; all of the money is not disbursed at one time. Basically, it is a line of credit that can be used accordingly, not to exceed the maximum loan amount. It is very similar to using a credit card.
 

Once you have closed on the loan you will know what your loan amount is. The time that you can use the money is called the "draw period" and it is usually between 2-25 years. Your payments will only be what you have used against the HELOC loan and if you stay within the minimum then you may only have to pay the interest on a monthly payment.
 

However, if you exceed the minimum then you can decide when and how much you want to pay back. While that may sound great, keep in mind that once the "draw period" is over the full loan obligation must be met. This is done either in a balloon type payment or according to a loan amortization schedule.
 

It is different from a conventional loan in other respects too. HELOC interest rates vary according to the prime rate. What this means is that the interest rate will change. A word of caution is that all lenders do not calculate the margin the same. The difference between the prime rate and the interest rate determines the margin which is the amount that borrowers pay.
 

HELOC loans are very popular, especially in the US. Because the interest that is paid is tax deductible on both federal and state taxes has made this type of loan one to seek. More people like these loans because they are also very flexible in the sense that they can be paid back however and whenever the borrower chooses to do so.
 

Regardless of the terms and the flexibility, the bottom line is that this loan must be paid back, plain and simple. The collateral is your home and if you fail to pay you will face foreclosure. Always keep this in mind when you are considering a HELOC loan.
 

 

 

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