One of the biggest benefits of homeownership is the option to borrow money against the value your home has accumulated over time. Many people turn to lending options, such as a home equity line of credit, to help cover large expenses such as home improvement or education costs. Learn more about how home equity lines of credit work and what you should know before making a decision. 

What is a home equity line of credit? 

A home equity line of credit is a revolving line of credit available to you secured by the equity in your home. Home equity lines of credit may have lower interest rates than other loans and the interest you pay may be tax deductible when used to make significant improvements to your home.

How does a home equity line of credit work? 

A home equity line of credit allows you to borrow against the equity available in your home. It is up to your credit limit and should not be confused with a home equity loan. You can use your line of credit as many times as you wish throughout the term of your loan (or draw period), which is generally 10 years.

When do I have to repay a line of credit secured by goodwill? 

As long as you use your home equity line of credit, you will receive a monthly bill for your minimum payment. Some loanSome only require you to pay interest during the term of the loan. Others require you to pay principal and interest, which can help keep your payments steady over time. The amount you owe may change depending on your balance and interest rate fluctuations. Making extra principal payments helps you pay less interest and reduces your total debt faster. As with a credit card, as you pay off your outstanding balance, the amount of available credit is replenished. The repayment period comes at the end of your loan term, and during this time, usually about 20 years, you can no longer get any money and must repay the debt.

What are the risks of a line of credit secured by goodwill? 

When you obtain a home equity line of credit, the equity in your home serves as collateral for the loan, which means that if you default on your payments, the lender could foreclose on your home. For this reason, it is important to carefully consider the reason for the loan and make sure you have a plan to pay the balance in full.

How do you qualify for a home equity line of credit? 

To qualify for a line of credit guaranteed for equity, you need to have sufficient equity in your home. Generally, you can receive a loan of up to 85 percent of the appraised value of your home. This is minus the amount you still owe on your mortgage or other loans secured by your home. Your lender will also review your credit score and credit history, employment history, income and monthly debts. A better credit score increases your chance of qualifying and may lower the interest rates you receive.