A Home Equity Line of Credit is a common type of loan that homeowners often take out when they have a need for financing. Many banks and financial institutions refer to these unique home equity loan arrangements as a HELOC. In some ways a HELOC can even be compared to a credit card account because most of the time they are structured as a “revolving” account.

While a HELOC can be considered a type of home equity loan, it does have some unique features that make it a bit different. They also have some specific benefits that often make it the most attractive form of financing for people who have some equity in their homes.

Home equity is the value of the “unencumbered” portion of a homeowner’s property. In simple terms, it is the difference between the fair market value of your home and the balance of any mortgages that have been taken out against the home. If you have a home with a fair market value of $220,000 and the balance of all your mortgage loans is $120,000 in total, then you have a home equity value of $100,000 that you can borrow against to take out a borrowing off your house.

Equity builds up over time in two ways. The first way is through paying down the balance of the original mortgage and any equity loan against the property. The second way equity increases is through property appreciation which can be considerable over time.

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This entry was posted on Saturday, March 8th, 2008 at 4:10 pm and is filed under Financial Services. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.