Home Equity Line of Credit - HELOC

A home equity line of credit is similar to a home equity loan in that it uses equity in your home as collateral. The key difference between a home equity line of credit, or HELOC, is that it is an open-ended home equity loan. This means that your approved loan amount becomes a revolving line of credit. The borrower chooses when and how often to use the money, similarly to a credit card.

Equity lines of credit are especially useful for financing home repairs, travel or vacations, or other expenses that are associated with projects or undertakings which may involve several expenses over a certain period of time, rather than a larger sum to be paid all at once.

A normal home equity loan, or a closed end home equity loan, offers one lump amount when the loan closes. Once the money is used, it is used, and payments start immediately. With a HELOC, the lender sets a credit limit, you take what you need as you need it, and pay it back after you take it. Once it is paid back, the money is available again if you should need it.

A home equity line of credit is considered a second mortgage, and they are secured against the value of your home. Second mortgages are almost always written for a shorter term than first mortgages, but they often carry a higher interest rate than your initial mortgage.

It may be possible to borrow up to 100% of your home's value. Home equity credit lines are usually available up to 30 years, and usually at a variable interest rate. Generally, the interest rate is determined based on the prime rate plus a margin.