A HELOC is a home equity line of credit that allows homeowners to borrow money using their home equity as collateral. Once approved, the borrower can access the amount they need when they need it. Some homeowners arrange for a HELOC to have an option available should funds be needed and will not owe interest until that point.
The interesting thing about a HELOC is that while it is a mortgage, it behaves like a credit card. It is revolving credit up to a specific amount. A homeowner can draw from the amount and needed and as it repaid, the amount available is replenished.
One of the benefits of a HELOC is that interest rates are usually, much lower than credit cards with revolving balances. The borrower must be credit worthy, have income to repay the loan and have adequate equity in their home.
If the funds are used to make capital improvements to their home, the interest could be deductible subject to the rules for qualified mortgage interest.
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