Definition
A home equity line of credit (HELOC) is a revolving credit account in which real property serves as collateral through a secondary lien, giving the homeowner the ability to borrow against the additional value of their home.
Analysis
A HELOC allows homeowners that have built equity in their homes (and land) to borrow against the value of their homes, less whatever is owed on their primary mortgage. These are frequently used by homeowners looking to remodel or simply looking for a lower interest loan to pay off other debt.
A homeowner with a HELOC may withdraw money up to the credit limit. Any payments and other credits toward the balance may be reborrowed at a later time.
A HELOC is one option for a homeowner seeking to cash out the equity in their home. Some howeowners choose to cash out equity by refinancing their existing mortgage.
Banks normally impose certain eligibility requirements. A HELOC applicant may need to have a certain credit score in order to qualify. Additionally, there needs to be enough proven equity in the home before a HELOC may be approved.
