The Home Equity Line of Credit: How It Works

by Kelly Richardson
Loan Page Columnist

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If you are looking for a way to make home improvements and need a loan, use the equity in your current mortgage to acquire a home equity line of credit. The HELOC loan has many benefits.

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A home equity line of credit is a loan that works fairly similarly to a credit card. A lender agrees to lend a particular amount of money over a specified period. Unlike a traditional loan that provides the entire amount up front, a home equity line of credit allows you to borrow incrementally until the maximum loan amount is reached.

Home Equity Line of Credit: Benefits

» Save Yourself Some Interest: One of the best aspects of a home equity line of credit is that you only pay interest until the end of the draw period.
» Switch to a Fixed Rate: Another characteristic of a good home equity line of credit is that you have the opportunity to switch to a fixed rate at the end of the draw period.

A home equity line of credit is not for everyone. There are situations where borrowers have used this mortgage loan and ended up in foreclosure because they could not make their payments.

HELOC Tips

Here are some simple things to ask when inquiring about a home equity line of credit.

» No Usage Fees: Make sure that you won't be penalized for not borrowing on an approved home equity line of credit account.
» No Loan Costs: There are plenty of "no closing cost" home equity lines of credit out there. Look until you find one.
» No Account Maintenance: Make sure that your home equity line of credit will not charge any maintenance or check writing fees.

The home equity line of credit can be a powerful weapon in your home equity arsenal.

About the Author Kelly Richardson holds a bachelor degree in English and master degree in education from Georgia State University.

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