A home equity loan or line of credit has become a very popular way to allow home owners to borrow money against the value in their home without refinancing or taking out a second mortgage.  While a home equity line of credit is similar to a second mortgage there is a significant difference.  When you take out a home equity line of credit you are not receiving a lump sum of cash.  Instead you have access to the money as you need it so you only pay interest on what you borrow up to your limit.  You are under no obligation to even use it.  The benefits of using a home equity line of credit include a lower interest rate and more flexible terms than an unsecured loan.  Just remember that you must make your payments on time since your house is collateral and you certainly do not want to lose that!

Similar to a credit card, the bank will be approve you for a specific amount of credit.  The lenders will usually set your limit to a percentage of the value of your house, often 85%, minus whatever your current mortgage balance is.  This will depend on the lender and your credit history.  Often where your house is located will often be a factor as well.  More secure real estate markets will allow you to borrow more as the bank won’t have to worry as much about the value of your house falling below what your loan is.

Just as you would for any other type of loan, you must compare interest rates among different lenders, know whether the line of credit has a fixed or adjustable interest rate.  Also you will need to know how you can access your money.  Often, if you go to your regular bank, you can spend from your home equity line of credit just as you would be able to from your checking account.  Some other companies will require you to place a call, or transfer from their bank to your bank which may take several days.  A home equity line of credit is a good way to ensure you have the funds you need for emergencies or repairs to your house.