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HELOC Principles of Work

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With a home equity line of credit (HELOC) your home equity is used as collateral. Your lender determines a borrowing limit, within which you can borrow money during a definite time. This period is called a draw period. When you borrow money you need to return it and pay the interests during a repayment period.

Moreover, after covering the obligations, you can borrow the money again. Thus you get a source of means until the lender decides to close or cancel it. You only pay interests on the actual amount you take. That’s why in certain cases this is a better variant than a home equity loan.

The mortgage loan providers prefer this type of lending because it’s secured with your equity. A borrowing limit is calculated depending on your credit score, regular income and your loan to value ratio.