A Guide to Home Equity Lines of Credit

by: John Mussi

It seems as though you can't turn on the television or read the newspaper without seeing some advertisement for lenders offering home equity loans or lines of credit. Perhaps you aren't really in the market for a loan, but after seeing all of the commercials and ads have begun to wonder about getting a line of credit. Maybe you want to do some home improvements, or are looking for a way to pay for some of the extra expenses that come up in your life.

It's important that you understand exactly what home equity lines of credit are and exactly how they work before you begin looking for one, however... after all, you don't want to get in over your head without even knowing how you got there.

Defining Home Equity Lines of Credit

The first thing that you need to know when working with home equity lines of credit is exactly what they are. As the name implies, a home equity line of credit is an amount of credit granted by a bank or other financial institution that uses the equity that you have built up in your home or other real estate as security to guarantee that anything charged to the line of credit will be repaid. This line of credit acts just like any other credit card or credit line, with the only major exception being the nature of the security used for the credit line.

Common Uses of Home Equity Lines of Credit

Since home equity is usually quite high in value, the amount of credit that can be established in a credit line based upon it also tends to be quite high. This can open individuals up to credit limits that they have never had before, which they can use for a variety of different purposes. Many individuals who take out credit lines based upon the equity in their house or other real estate use the new credit for larger projects, such as home improvements or debt repayment.

These lines of credit might also be used to pay for college or other educational expenses for individuals or their children, or may simply be used as the means for financing the vacation that a person has always wanted to take but has never really had the money.

Obviously, the choice is up to the homeowner... but it's important to keep in mind that whatever is borrowed against a home equity line of credit will have to be repaid with interest.

Applying for a Home Equity Line of Credit

A home equity line of credit can be applied for at any bank or a variety of non-traditional or specialty lenders who deal with home equity. Even most online lenders are able to grant this type of credit line. Treat the credit line application as though it were a mortgage or equity loan, and take the time to shop around for the best interest rate and credit terms.

Compare the various quotes that you receive from various banks and lenders, making sure that you carefully consider the benefits and drawbacks of the various credit terms that you are offered.

When you submit your final application to the bank or lender of your choice, it should be because you have decided that it is the best overall deal among all of the offers that you received instead of simply being the offer that had the lowest interest rate.