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An equity line also known as a home equity line of credit (HELOC) is a type of residential loan secured by a mortgage on land you own, such as your house.  An equity line allows you to get funds when you need it for any reason.


What is an Equity Line?

An equity line of credit works somewhat like a credit card.  It is a revolving line of credit that you can access when you need funds. Depending on your bank, you might access the equity line of credit via a check, connected credit card or an online transfer.

An equity line of credit has minimal closing costs, though that also depends on your bank. 

Rates are usually variable on equity lines, though some banks might offer fixed rates for a few years.

Pros of Using an Equity Line of Credit


The biggest attraction to an equity line of credit is that you can borrow from the credit line any time you need money. The funds you do not use do not incur interest – only the funds you borrowed against the line.

Other benefits include:

  • Lower interest rates since the equity line of credit is secured by your home.

  • Access to cash whenever you need it.

  • Interest-only payments for the first 10 years (the draw period).

  • Does not charge points.

  • You may be able to write off some of the interest payments if you itemize deductions and use the money for your home, not your business.

Cons of Using an Equity Line of Credit

  • May have minimum withdrawals.

  • When interest-only payments end, the monthly payment could double (the repayment period).

  • If you default on the equity line, the bank can foreclose on your home.

  • The equity line will have to be paid off and closed, if you ever sell your home, at the closing.  You would then have to reapply to obtain a new equity line on your new house.




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