Home Equity Lines of Credit

Home equity lines of credit (HELOC) are credit lines secured by your home. They give you revolving credit for big projects or expenses and can be used to consolidate higher-interest-rate debts on other loans like credit cards. Use the equity in your home to fund your latest home renovation and enhancement projects, consolidate debt, fund college educations or pay for other financial needs.

Understanding Home Equity Lines of Credit

Home equity lines of credit allow you to secure a loan leveraging available equity — your house is used as collateral for the credit line. When you pay the outstanding balance, your credit amount is replenished similarly to that of a credit card. This non-traditional loan enables you to borrow small or large amounts against your equity during a drawing period of around 10 years. You set a credit limit, and at the end of the drawing period, you repay the outstanding balance over time.

To qualify for a home equity line of credit, you must have available equity in your home. This available equity means that the value of your home must be more than the amount you owe. In most cases, you can borrow up to 85% of your home’s value minus the amount you owe. Your credit score and history, as well as your monthly income and debts, impact your eligibility.

Both home equity lines of credit and home equity loans allow you to obtain a loan using the assessed value of your home. These accounts may help you achieve the same ends, but they are not the same.

They allow you to draw money or borrow multiple times from your available amount. With a home equity loan, you receive a lump sum payment, typically with a fixed interest rate.

HELOCs work like credit cards offering revolving credit lines, except your home is used as collateral for the credit. Home equity loans are traditional loans — you borrow a specific amount given to you as a one-time cash payment. You must then pay regular monthly payments for a fixed payment period.

Yes. You can refinance your house with a home equity line of credit. There are various ways to do this, including refinancing to another HELOC, using fixed-rate home equity loan funds or paying solely by cash-out refinance.

To get a home equity line of credit, you typically need at least 20% equity in your home, a good credit score and an acceptable debt-to-income (DTI) ratio. Lenders also require you to have a steady and adequate income to enable you to pay the balance during the payment period.

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Home Equity Lines of Credit