Home Equity Line of Credit

Home equity line of credit is a form of revolving credit in which your home serves as collateral. Because the home is likely to be your largest asset, you may use your credit lines only for major items such as education, home improvements, or medical bills and not for day-to-day expenses.

With a home equity line, you will be approved for a specific amount of credit—your credit limit, the maximum amount you may borrow at any one time under the plan. In determining your actual credit limit - ability of repayment is considered through your income, debts, and other financial obligations as well as your credit history.

Once you are approved for a home equity line of credit, you will most likely be able to borrow up to your credit limit whenever you want. Typically, you will use special checks to draw on your line. Under some plans, borrowers can use a credit card or other means to draw on the line.

Advantages
. You only borrow what you need.
. Pay interest only on what you borrow.
. Flexible access to funds.
. Interest may be tax deductible.

Disadvantages
. Rates can change. The maximum interest rate is normally high.
. Payments can change.
. Harder to refinance your first mortgage.