Home Equity Line of Credit
A home equity line of credit is a type of revolving credit where your home is served up as collateral. Because a home is typically the consumer’s most valuable asset that they have, many use their home equity credit lines for major items only. For example: higher education, home improvement, or medical expenses. With a home equity line, you are approved for a certain amount of credit.
Many lenders will set the limit of credit on a home equity line by taking a portion of the home’s appraised value and subtracting the balance owed on the existing mortgage. In determining your actual credit limit, the lender will also consider your ability to repay the loan by taking your income, debts, other financial obligations, and credit history into consideration.
Once you are approved by the bank for a home equity line of credit, you will more than likely be able to borrow up to your credit limit whenever you want to. Usually, you will use specially made up checks to draw on your line. Under some plans however, borrowers can use their credit card or other means to draw on the line.
Depending on your financial institution, there may be limitations involved on how you are able to use your line. Some plans may have it in the contract that you have to borrow a minimum amount every time you draw on the line, or keep a minimum amount outstanding. Some plans may also ask that you take an immediate advance when the line is set up