Home Equity Line of Credit (HELOC) is a line of credit against which a homeowner can borrow as often as his financial situation calls for. He can borrow and pay off the debt any time he chooses. When there is an outstanding balance, the required payment is the interest accrued every month. When there is no balance, he incurs no finance charges.
Home Equity Loans, similar to all mortgages, are secured by the house. Should the homeowner defaults on payments, the bank can foreclose on the house that is used as collateral.
Most banks allow homeowners to borrow up to 100% of the house value. A handful of "non-prime" lenders even lend up to 125% of the value. As one can imagine, there are many restrictions on such high Loan-to-Value Home Equity Line of Credit. One of the most common restriction is an appraisal report on the property to ensure the house value is supported and that the local housing market is not in a down trend with declining values.
Ways to use your Home's Equity to your advantage is to get the rate down as low as possible. One option is Auto debit. You can receive a discount rate if you automatically debit a set amount each month from your credit line. It can be used to pay bills or car payments. Option two, some lenders will give you a discount rate if you agree to use your credit limit as soon as you get it.
HELOC's are usually fully indexed at the Prime Lending Rate plus an additional number of interest points depending on what the borrowers credit score is, and how much money is borrowed against the property -vs- its' value.
A heloc can be used when interest rates are low to purchase vehicles and other large items which would normally be financed with fixed rate loans. Check with your tax consultant about writing off the interest that is paid on these items. HELOCS can have a check and credit card attached to them for ease of use when purchasing against the equity of your home.