Get Money out of Your Home - HELOC

By JJ Singh
LoanPage Columnist

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When it comes to mortgages, nothing's scarier than a long acronym. But while "HELOC" looks complex, it's actually a simple tool to get cash when you need it.

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Breaking Down the HELOC (Home Equity Line of Credit)

To get a grasp on HELOC, let's break down the terms:

» Home equity. The difference between your home's value and the balance of your mortgage. For example, if your house is appraised at $400,000 and you still owe the bank $185,000, your equity is $215,000.
» Line of Credit. A revolving credit account. A good example of this is like a credit card where you have a pre-authorized spending limit.

A home equity line of credit allows you to open up a credit line that is secured by the equity in your home. If you default on you loan, the bank can sell your house to recoup their lost money.

Line of Credit vs. Standard Home Equity Loan

Homeowners use home equity loans to remodel their homes, finance their children's education, buy a new car, or even pay for a wedding. But which is better: a standard home equity loan or a line of credit?

A standard home equity loan is a fixed installment loan, almost like a second mortgage. You get your cash all at once and the interest rates stay the same. A HELOC allows you to draw down from the account whenever you like, but the interest rates may change over time.

When making your decision, it's important to determine whether your finance needs are immediate or long-term. This will help you get the right loan for your needs.

About the Author

JJ Singh is a loan consultant who has mortgaged his life away to the micro finance industry in New York City. He holds a bachelor's degree in Economics from the University of Virginia.

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