QandAs: Loans

What is a Home Equity Line of Credit or HELOC?

Answer:
A home equity line of credit, or HELOC

for short, is a type of a mortgage loan that lets you borrow money against the equity in your home. Equity is the difference between what your house is worth and what you owe on it, if anything. It is a line of credit so you only borrow what is needed when it's needed.

You may borrow whatever amount you like up to your credit limit. Your payments are based on your outstanding balance. The more you pay toward your balance, the more credit is available to you. You will receive a checkbook that draws on your Home Eqity Line of Credit, allowing you to borrow money for any purpose.

Often times a Home Equity Line of Credit is piggy backed onto a fixed mortgage to take advantage of the 80 - 20 mortgage which is where 80% of your home is paid for using a fixed rate mortgage and the 20% is paid for using a Home Equity Line of Credit. By doing so, an 80 - 20 mortgage eliminates PMI (Private Mortgage Insurance).

Often times a Home Equity Line of Credit is drawn against to fund Home Improvement projects .


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