Home equity line of credit (HELOC) are home equity loans which are based on the paid up equity you have in your home. A HELOC is not really an actual sum of money which is handed to you when you sign up for the loan. It is a line of credit that you can resort to when you need cash.
Most people confuse a HELOC with a normal home equity loan which is a traditional loan that uses your home as the collateral. While the HELOC is also a loan based on your home as collateral, it is significantly different from traditional loans. It is not a real debt which you have to pay off, until you actually use the line of credit available. You can draw funds as and when you need them subject to the maximum limit determined when you signed up for the HELOC. If you have an existing mortgage on your home, the HELOC lender will use the debt free portion of your home value to determine the loan amount.
A HELOC is a good way to create an easily accessible and fairly substantial emergency fund. Most people use HELOCs to prepare for known and expected future expenses like education or major repairs. Because these loans are based on the home value, they can make a large sum of money available to you.
For those who are looking to boost their credit score, a HELOC is an obligation free and simple method of improving the debt to available credit ratio. This ratio plays an important part in determining your credit score. If you are shopping for home equity loans to meet such needs, then look for HELOCs from reputed lenders in your area.
