Final answer:
The acronym HELOC stands for home equity line of credit. It is a type of loan that allows borrowers to access funds using the equity in their home as collateral.
Step-by-step explanation:
The acronym HELOC stands for home equity line of credit. A home equity line of credit is a type of loan in which the borrower uses the equity in their home as collateral. This allows the borrower to access funds up to a certain limit, similar to a credit card. The borrower can then use these funds for various purposes, such as home renovations or debt consolidation.
A HELOC typically has a variable interest rate, meaning it can fluctuate over time. The borrower can draw funds from the line of credit as needed and only pay interest on the amount borrowed. As they repay the borrowed amount, the available credit is replenished.
For example, let's say John has a HELOC with a limit of $50,000. He currently has no outstanding balance on the line of credit. If John decides to borrow $10,000 to finance a home renovation project, he would only need to pay interest on the $10,000 he borrowed. As he pays off the borrowed amount, he can continue to use the available credit for future expenses.