What is a Home Equity Line of Credit?

When you need to access the equity in your home to fund a purchase, you will have two options available to you. They are a home equity loan and a home equity line of credit. While they sound much the same, they are different. Depending on your circumstances, one option may be more appropriate for your needs.

A home equity line of credit is similar to a home equity loan in that it allows you to access the equity in your home to fund some other purchase. The difference is that with a home equity loan, all of the proceeds of the loan are given to you at once. With a line of credit, you have the opportunity to draw upon the funds when you wish, but you do not have to take the proceeds all at once.

When you take out a home equity line of credit, you typically have a draw period in which you are allowed to draw upon the funds from the loan. The exact length of the draw period will vary. Some lenders stipulate that you must draw out a minimum initial amount and/or that you must draw upon the line of credit every so often. Withdrawals from the line of credit may be made through a special check or through a special debit card. Once the draw period for the line of credit has closed, you are responsible for paying back the loan. Depending upon the terms of the loan you may pay it back over a period of time or all at once. Due to the fact that the terms of a home equity line of credit can vary, it is imperative to make sure that you fully understand them before you make such arrangements.

Overall, a home equity line of credit can be an ideal solution for many homeowners, especially those who are facing medical expenses or who are sending a child off to college. This is because they allow you to access the funds only when you need to do so rather than all at once. In addition, this type of loan allows you to obtain a much better interest rate than you would typically be able to receive on a standard loan or by using credit cards. You may also be able to take advantage of tax deductions as well, since the loan is tied to your mortgage.