HELOC: Home Equity Lines of Credit

HELOC, or Home Equity Lines of Credit, refers to loans issued against home equity of the borrower with the amount sanctioned available for withdrawal during an agreed period. This type of loan is different from standard home equity loans or reverse mortgages because the borrower is not provided with the total sanctioned amount upfront. Instead, the borrower uses lines of credit to borrow, as and when required, during the agreed period. In most of the cases, HELOCs are second mortgages, but they can be first and third mortgages as well.

Features of HELOC: Home Equity Lines of Credit

These loans are granted against the equity in the applicant’s house wherein the equity refers to the amount spent to acquire and improve the property. They work like a credit card with the total amount that can be borrowed decided in advance. These loans have a draw period during which the borrower can use the credit line and pay only the interest. The draw period is generally between five to ten years. At the end of the draw period, the borrowers have several options before them.

They can either

§         Pay back the full principal HELOC amount borrowed

§         Pay a HELOC Balloon payment

§         Pay based on loan amortization schedule

The interest rate on these loans is variable and depends on an index such as the prime rate. However, the interest paid on these loans is usually tax deductible. Some of these loans include the option to convert from variable rate interest to fixed rate interest loans. They are quite convenient for funding intermittent needs and the upfront costs for these loans are very low.

The major disadvantage in using a HELOC is that the interest rates on it are tied to market rates. Any change in market rates has an immediate impact on the rates of home equity lines of credit. In the aftermath of the 2007 financial crisis, several lenders in the US informed the borrowers that their home equity lines of credit had been frozen, suspended, restricted or rescinded. Thus, HELOC’s also carry the risk of  lenders cutting down on an unused credit lines.

Economy Articles 1

From command economies to traditional, barter, bubble and service economies, this section details numerous topics relative to various types of economies.

This section has been designed to provide background information about different aspects of various economics.

This section includes articles related to different types of economic systems, as well as a number of contemporary issues influencing the world economy, the distribution of economic powers, the issue of globalization, and other topics of interest.

While different types of economies prevail in certain regions of the world, these economies may illustrate many similarities, as well as differences, depending on the specific example.

A fuel economy for instance, is dominated by the international demand for crude oil and gasoline, while a command economy is a market system that is heavily regulated by the government.

These articles also provide information about the open economy - where no obstruction is imposed on trade or commerce, investment or other financial activities.

Other topics are discussed in this section include the traditional economy, barter economy, bubble economy, and the service economy.

Issues that are selected for this section are related to particular economies, but at the same time these issues are also dominating the global economy. Some of these important issues include crises such as the global credit crunch, renewed fears about inflation and its effect on world economies, the downfall of the US housing market, major sporting events such as the Olympics and their economic impact, and world economies in general.

Other featured articles focus on the growth of China and India, with a special emphasis on the different challenges faced by these emerging markets.

Globalization and its impact on developing economies is also discussed in this section, while more information is contained in the country-specific sections that focus on the economic development of each country.