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Home Equity Credit Line Resource Guide

What is a Home Equity Credit Line and how does it work?

Borrowing against the equity in your home is a popular way to obtain a line of credit. There are many different types of home equity loans you can get, most have variable interest rates, some with low introductory rates, and some with fixed rates.

Most lenders take a percentage of the home's appraised value(usually about 85%) and subtract the balance owed on the existing mortgage and set that as the limit of the line of credit you can borrow. The lender will also consider your financial history, looking at your income, debts, and credit history.

Most lenders set a fixed period of years where you can borrow money from the credit line, usually 10 years. At the end of this period you must pay off the balance on the line of credit in full. Some lenders will allow you to renew the credit line.

Some Pros are:

access to the money any time during the set period
only pay for the money you use
the interest you pay is tax deductible
low cancellation fee
no prepayment penalties

Some Cons are:

may put your home at risk if you are late or cannot make your monthly payments
you might find you borrow money more freely since you have access to it any time.