When you are looking for a loan for a major purchase or to have in place in case of an emergency, you will encounter a number of loans at your bank or financial institution. If you own your home, a home equity line of credit is likely amongst the types of loans available to choose from.

Secured

A home equity line of credit is a type of secured loan, where you pledge a portion of the value of your home as collateral for a loan. If you default or stop paying on your home equity loan line of credit, your financial institution has the legal right to foreclose on or take your home.

Revolving Credit

A home equity loan line of credit is a type of revolving loan, meaning you have an established credit limit and borrow money against that limit only when you need to. As you repay the amount borrowed from your home equity loan line of credit, it becomes available for you to borrow from again.

Payments

Because you have the ability to borrow from a home equity loan line of credit again and again, the amount of your monthly payment for the loan will change every month. Typically, the monthly minimum payment for a home equity loan line of credit is equal to a percentage of your balance on the loan.

Interest

In exchange for receiving the money when you need it, your bank charges you interest or a fee based upon a percentage of your outstanding balance of your loan each month. With home equity loan lines of credit, the interest rate is often variable, meaning that it can increase or decrease over time.

Requirements

When deciding whether to approve a home equity loan line of credit application, financial institutions consider your credit history, income and the value of your home. In many cases, your financial institution will order an appraisal or written estimation of the value of your home.

Source:

The Federal Reserve Board: What You Should Know About Home Equity Lines of Credit