Quick Facts About A Indianapolis Home Equity Line of Credit

Quick Facts About A Indianapolis Home Equity Line of Credit

An Indianapolis home equity line of credit, home equity line, or Flex line (HELOC) is a loan where the lender advances a loan to the borrower using the borrower’s home equity as collateral. Many people confuse this line of credit with a home equity loan.

With a home equity loan the borrower gets the whole amount in advance while with a HELOC, the lender determines how much of the loan the borrower can access.

Calculation of Interest for a Indianapolis home equity line of credit

The HELOC interest rates are adjustable and are calculated on a daily basis. The interest rate of HELOC is calculated based on an index, usually the prime rate. The lender lumps a margin to this rate to come up with the final interest rate to be charged.

This means that if the prime rate is 5% and the lender’s margin is 3%, the interest rate charged will be 8%.
A HELOC is divided into two distinct phases. They are:

• The Draw Period
At this stage, you can borrow any amount of money at any time using your Indianapolis home equity line of credit up to your credit limit. During this stage, you only pay the interest on borrowed money. There are no penalties if you pay part or the full amount borrowed during the draw period. This period lasts between five to fifteen years.

• The Repayment Period
This stage takes place when the draw period ends. The borrower has two options in terms of repayment of the loan. The lender might decide he wants the amount borrowed paid in full or can schedule a repayment plan where the borrower pays in installments.

An Indianapolis home equity line of credit has gained popularity due to its flexibility both in terms of lending and the repayment schedule. There are also reduced costs of borrowing because the interest paid is adjustable.