Home Equity Line of Credit

Author: Terri Ewing | Date: October 30, 2008 | Filed In: Glossary

Home Equity Line of Credit Defined

A home equity line of credit is a lien where you borrow against the equity in your home. It is usually in second place behind a first mortgage. They are also known as a HELOC (pronounced like, he lock). You can get a home equity line of credit when you buy your home. If you use 2 mortgages to buy, the second mortgage can be a HELOC. You are basically borrowing your down payment which would have been your equity.

At that point, the whole line is used and you have no more access to it. You just make the monthly payments like you would any other mortgage. You usually get your home equity line of credit from whatever lender is approving your first mortgage.

You may get a HELOC because you want to tap into your equity and not have to refinance your first mortgage to do it. Or, you may just want the option of using your equity if you need it. Usually, the best place to get one is just to go to your bank. This is not something you need to go to an independent originator for. When you are approved, the bank issues checks and a checkcard for you to draw off your line.

Home equity lines of credit are not without serious drawbacks. They are like a credit card and are very hard to pay down. They adjust whenever the Prime rate adjusts and can have cancellation fees. Read more about HELOC Mortgage Dangers.

Author: Terri Ewing