A home equity line of credit works like any other line of credit. You are given an amount you can borrow and you draw money from the account as you need it. The money is accessed usually by a specially issued credit card or other means. You only pay interest on the amount you actually use. Home equity lines of credit usually have a low variable interest rate, but sometimes you can find a fixed interest rate. Your home serves as collateral on an home equity line of credit and should really only be used for major items such as education, home improvements, or medical bills and not for day-to-day expenses. Since you use your home as collateral if you default on the payments you can lose your home.

A home equity line of credit is 'revolving' which means you

There are some advantages and disadvantages of getting a home equity loan that should be looked at. Some advantages are the interest rate that you will pay on a home equity line of credit is quite a bit less than with credit cards or personal loans. Another big advantage is that the interest that you pay on your home equity line of credit may be tax deductible because the debt is secured by your home. For more information about your interest being tax deductible you will want to consult a tax advisor. The biggest disadvantage of a home equity line of credit is that if you default on your payments, the lender can take your home.

Something that you should watch out for while looking or applying for a home equity line of credit is to make sure you get a fixed interest rate. Some home equity line of credits offer an initial variable rate, but after a certain period they may let you roll over your account to be in the fixed rate interest option. A lot of lenders want to give you a home equity line of credit that has a low variable interest rate. With there being talks of more interest rate hike I would be looking for a equity line of credit that has a fixed interest rate even if the fixed rate has a little higher interest rate, especially if you are going to have the line of credit with a balance on it for an extended amount of time. Interest rates might be really low right now but if you have a variable interest rate, when the interest rate goes up you may be stuck with a line of credit that has a higher interest rate than you wanted. Don't be suckered in by those low intro variable teaser rates.

Being educated and staying informed of interest rates is key to getting the best rate when applying for a home equity loan. Make sure that you shop around with several different lenders when considering a home equity line of credit then make them compete for your business.