Which statement correctly describes a Home Equity Line of Credit (HELOC)?

Which statement correctly describes a Home Equity Line of Credit (HELOC)?

• A. It requires fixed monthly payments
• B. It is a revolving line of credit secured by equity in the home
• C. It has a set interest rate for the loan term
• D. It cannot be drawn upon after the initial amount is disbursed

Answer: (B)

A Home Equity Line of Credit (HELOC) is indeed a revolving line of credit that is secured by the equity in a home. This means that the homeowner can borrow against the value of their property, and as they pay back the borrowed amount, they can borrow again, provided they stay within the limit established by the lender. This flexibility is one of the defining features of a HELOC, as it allows homeowners to access funds for various purposes, such as home improvements, debt consolidation, or unexpected expenses. The concept of being "revolving" is crucial to understanding a HELOC, as it differentiates it from a traditional fixed loan where a lump sum is disbursed at the outset, and set monthly payments are required. Instead, with a HELOC, there is an available credit line that can be drawn down, paid off, and borrowed against repeatedly during the draw period, making it a dynamic financial tool. This also means that homeowners only pay interest on the amounts they actually draw.

A Home Equity Line of Credit (HELOC) is indeed a revolving line of credit that is secured by the equity in a home. This means that the homeowner can borrow against the value of their property, and as they pay back the borrowed amount, they can borrow again, provided they stay within the limit established by the lender. This flexibility is one of the defining features of a HELOC, as it allows homeowners to access funds for various purposes, such as home improvements, debt consolidation, or unexpected expenses.

The concept of being "revolving" is crucial to understanding a HELOC, as it differentiates it from a traditional fixed loan where a lump sum is disbursed at the outset, and set monthly payments are required. Instead, with a HELOC, there is an available credit line that can be drawn down, paid off, and borrowed against repeatedly during the draw period, making it a dynamic financial tool. This also means that homeowners only pay interest on the amounts they actually draw.