What Is A HELOC And How Does It Work
                     What Is A HELOC And How Does It Work? 
 
Do you have a big purchase coming up and you're not sure how you'll afford it? Or maybe you're looking 
for a way to pay down your debt faster. If so, then you may want to consider a HELOC. A HELOC, or 
Home Equity Line of Credit, is a loan that uses the equity in your home as collateral. In this article, we 
will discuss what a HELOC is and how it works. We will also talk about the benefit of using a HELOC to 
finance your next purchase. 
 
What is HELOC? 
 
A HELOC is a loan that is secured by your home equity. Home equity is the portion of your home's value 
that you own outright or the portion that you have paid off. For example, if your home is worth 
$300,000 and you owe $200,000 on your mortgage, then you have $100,000 in home equity. HELOCs 
are typically available in two forms: a fixed-rate loan or a variable-rate loan. With a fixed-rate loan, you'll 
have the same interest rate for the term of the loan. This means that your monthly payments will 
remain the same, even if interest rates rise. With a variable-rate loan, your interest rate will fluctuate 
along with the prime rate. This means that your monthly payments could go up or down, depending on 
the prime rate. 
How do HELOCs work? 
 
HELOCs are revolving lines of credit. During the draw period, you can take out the money as many times 
as you need via check or a debit card, as long as it's below your total loan amount. You must also make 
minimum monthly payments, typically just for the interest that accrues during the draw period. As you 
repay your HELOC, this money is added back to your revolving balance (so you can continue to withdraw 
funds). 
 
Once the draw period comes to an end, you enter the repayment period, which usually lasts between 10 
to 20 years. At this point, you can't take more money out of your HELOC. Once you're in the repayment 
period, your monthly payments will increase because you must start paying back the principal (the 
amount you withdrew) in addition to the accrued interest. 
 
You can typically borrow up to 85% of your home's value, minus the amount you still owe on your 
mortgage. To determine how much equity, you have in your home, subtract your remaining mortgage 
balance from the house's current market value. So, if your house is worth $500,000 and you have 
$300,000 left to pay off on your mortgage, you would have $200,000 in equity. If you borrowed 85% of 
your home's equity, your loan amount would be $170,000. 
 
 
 
What can a HELOC be used for? 
 
A HELOC can be used for anything you want, including home improvement projects, debt consolidation, 
or even a large purchase like a car or boat. HELOCs can also be used as an emergency fund in case you 
have unexpected expenses come up. 
 
Benefits of HELOC 
There are several benefits of using a HELOC to finance your next purchase: 
- HELOCs typically have lower interest rates than credit cards or personal loans. This means you'll save 
money on interest charges over time. 
- HELOCs offer flexible repayment terms. You can make minimum monthly payments during the draw 
period and then increase your payments during the repayment period. This can help you better manage 
your cash flow. 
- HELOCs can be used for a variety of purposes, including home improvements, debt consolidation, or 
large purchases. 
- HELOCs offer tax benefits. Interest paid on a HELOC may be tax deductible (consult a tax advisor to 
confirm). 
 
If you are looking for a flexible and affordable way to finance your next purchase, a 
HELOC may be a good option for you. Talk to Forward Mortgage LLC, today to see if a 
HELOC is right for you.