HELOC is the acronym for Home Equity Line Of Credit. This is a more common home equity agreement than the HEL (Home Equity Loan) whereby the bank provides you with a line of credit based on the equity you have in your home. A HEL should not be confused with a HELOC.

For an example I’ll use a personal Heloc my husband and I have with Bank of America:

We have a house and property that’s appraised to have a market value of $650,000, and the outstanding principal on the mortgage is $170,000. These leaves us with an estimated equity of $480,00o.

We needed a line of credit for business and personal purposes and the bank gave us a $60,000 dollar LOC (Line Of Credit), based on the market value of our home as appraised above.

This means that whatever we owe on our HELOC we have to pay back when we get out of the housing market. If we sell the home we’re in and buy a new one we can pay out the bank or carry the HELOC to the next property.

HELOCs are used for a number of reasons – here are a few:

• to use for home improvement projects
• for use as a down payment on another property
• for use as a small business line of credit

HELOCs are different then straight HELs because your interest rate is variable and changes with whatever prime index the lender uses. (usually the Cost of Funds Index.

For more on HELOCs read here.