A Home Equity Line of Credit allows you the
flexibility to borrow funds when you need them.
Home Equity Lines of Credit are also commonly
knows as a HELOC!

Definition
A home equity line of credit is a form of revolving credit, similar to a
credit card, that is secured by your home, with a set maximum
credit limit.  The revolving line of credit offers the borrower the
flexibility to borrow funds when they need them up to the total line
of credit amount.   Home equity lines of credit are also commonly
known as HELOC loans.

The lender will typically provide the borrower with a checkbook or
a credit card that is used to borrow funds against the home equity.
You will be approved for a specific amount of credit, your credit
limit, which is the maximum amount you can borrow at any one time
while you have the plan.  

How is it different from a Home Equity Loan?
Unlike a home equity loan, with a home equity line of credit, the
borrower pays interest only when they use the funds.  As the
borrower pays back the funds they "revolve" and become
available to them again for the term of the loan.  For example, let's
say you have a $15,000 line of credit.  You borrow $6,000, but then
pay back $3,000 toward the principal.   You now have $12,000 in
available credit.  This gives you more flexibility than a fixed-rate
home equity loan because you cannot borrow further amounts of
money from the standard home equity loan.

The interest rates on most home equity lines of credit vary with
changes in an index rate, such as the prime rate. 

Limitations
Note that under some plans there may be limitations on how you
can use the credit line.  Some plans, for example, may require you
to borrow a minimum amount each time you draw on the line ($200
for example) and to keep a minimum amount outstanding.  Some
lenders may also require you to take an initial advance when you
first set up the plan.

Credit lines have a variable interest rate that fluctuates over the life
of the loan.  Payments will vary depending on the interest rate and
how much credit you have used.  Assume that you borrow $10,000
and your home equity line of credit plan calls for interest only
payments.  At a 10 percent interest rate, your monthly payments
would be $83.  If the rate rises to 15 percent, your monthly payments
will increase to $125.

Balloon Payment
When the life span of a line of credit has expired, the entire
outstanding balance must be paid off.  This is commonly known as a
balloon payment.





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