A HELOC (Home Equity Line of Credit) agreement is a document that outlines the terms and conditions of a line of credit that borrowers can use to access funds based on the equity they have in their home. This agreement is important for both borrowers and lenders, as it ensures that both parties are clear on the terms of the loan. In this article, we will provide a sample HELOC agreement and discuss the key elements that should be included.
Sample HELOC Agreement
[Insert Bank/Lender Name] Home Equity Line of Credit Agreement
This Home Equity Line of Credit Agreement (“Agreement”) is made and entered into on [Insert Effective Date], by and between [Insert Borrower Name(s)] (“Borrower”) and [Insert Bank/Lender Name] (“Lender”).
1. Line of Credit. Lender agrees to make a line of credit available to Borrower from time to time, as determined by Lender, up to the maximum amount of [Insert Maximum Credit Amount] (the “Credit Limit”). Borrower may request advances from the line of credit at any time during the term of this Agreement, provided the aggregate outstanding balance does not exceed the Credit Limit.
2. Interest Rate. The interest rate on the line of credit will be variable and will be determined by Lender in accordance with its policies and procedures. The interest rate will be based on the prime rate plus a margin, which will be disclosed to Borrower in writing.
3. Payments. Borrower shall make minimum monthly payments of the interest owed on each advance from the line of credit. The minimum monthly payment will be calculated by multiplying the outstanding balance on each advance by the interest rate and dividing by 12. Any unpaid interest will be added to the outstanding balance.
4. Security Interest. Borrower grants Lender a security interest in the property described in the mortgage or deed of trust securing Borrower’s primary residence as collateral for the line of credit. Borrower agrees that Lender may file a UCC-1 financing statement or other document necessary to perfect Lender’s security interest in the collateral.
5. Termination. This Agreement shall remain in effect until terminated by either party upon written notice to the other party. In the event of termination, Borrower shall pay all amounts outstanding on the line of credit in accordance with the terms of this Agreement.
6. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the state in which the property described as collateral is located.
7. Entire Agreement. This Agreement represents the entire understanding between the parties and supersedes any prior understanding or agreement, whether oral or written.
Key Elements to Include in a HELOC Agreement
When drafting a HELOC agreement, there are several key elements that should be included to ensure that both parties understand the terms of the loan. These elements include:
1. Line of Credit: The agreement should clearly state the maximum amount of the line of credit available to the borrower and how the borrower can access the funds.
2. Interest Rate: The agreement should clearly state the interest rate on the line of credit and how it will be calculated.
3. Payments: The agreement should clearly state the minimum monthly payments required on the line of credit and how they will be calculated.
4. Security Interest: The agreement should clearly state what collateral will be securing the line of credit.
5. Termination: The agreement should clearly state the conditions upon which the agreement can be terminated and the obligations of both parties upon termination.
6. Governing Law: The agreement should clearly state which state’s laws will govern the agreement.
7. Entire Agreement: The agreement should clearly state that it represents the entire understanding between the parties and supersedes any prior agreements.
In conclusion, a HELOC agreement is an important document that outlines the terms and conditions of a line of credit that borrowers can use to access funds based on the equity they have in their home. When drafting a HELOC agreement, it is important to include key elements such as the line of credit, interest rate, payments, security interest, termination, governing law, and entire agreement. By including these key elements, both parties can have a clear understanding of the terms of the loan and avoid any misunderstandings or disputes.