Home Equity Loans and Lines of Credit
A home equity line of credit (“HELOC”) is a form of revolving credit in which your home serves as the collateral for the obligation. Similarly, a home equity loan is a one-time loan for which your home serves as the collateral for the obligation. Some homeowners choose to use home equity loans or lines of credit for major expenses, such as education, home improvements, or major medical bills. However, due to the risks of borrowing against equity and because the home is often the consumer’s largest asset, most homeowners who utilize their home equity as collateral do not do so for day-to-day expenses.
If you choose to get a home equity loan, you will generally be approved for a specific loan amount that you will be able to access at one time. If you get a HELOC, you will be approved for a specific amount of credit which is the maximum amount you may borrow at any one time. Various lending institutions, including some banks and credit unions, offer home equity loans and lines of credit. Each provider will have different terms and conditions for their programs. If you are considering a home equity loan or line of credit, you should research different institutions to find the best offer for you.
Before determining if a home equity loan or line of credit is right for your situation, you should research your options. Some resources that may be useful for you include:
- The Federal Trade Commission has published information on Home Equity Loans and Credit Lines at: www.consumer.ftc.gov/articles/0227-home-equity-loans-and-credit-lines
- The Federal Reserve Board has published a brochure about Home Equity Lines of Credit at: files.consumerfinance.gov/f/201204_CFPB_HELOC-brochure.pdf