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Home equity line of credit, defined

06/08/2007

A "home equity loan line of credit" is a refinance mortgage you get on your home to take an amount of equity (or 'cash') that's in your home, out of your home. Then, that amount of equity is converted into a line of credit for you to draw cash from as you please.

Just like with credit cards, you are only charged interest on the amount you've actually used from your home equity credit line, and not on the total amount. That's the difference between a regular home equity loan, and a 'line of credit home equity loan:' with a regular home equity loan that is not a line of credit, you would be charged interest on the full amount of the loan right from when you first obtained that loan.

But with a 'line of credit' home equity loan, you're only charged interest on the amount you actually use out of the line of credit: making it cheaper than a regular home equity loan, and far cheaper than a credit card.

For example, with a 'regular home equity loan' of $10,000 - you would be charged interest on that full amount right away: so at a rate of 6%, you would start paying $63/month for that home equity loan. But, with a 'line of credit' home equity loan that is also $10,000 - if you only used $1,000 of that amount, you would only make payments of $6/month (yes, 'six dollars') and you wouldn't be charged any interest on the remaining $9,000 unless you used it.

Learn more about home equity loan lines of credit

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