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How does a home equity line of credit work?

There's a website here which explains how a home equity line of credit works. I hope this helps.

Good luck! Source(s): http://www.fundconsolidation.com/debt-co...

The bank appraises your property to determine the value. They will then approve a 'revolving credit line' that you draw on as needed, using a lien as collateral.

You can pay interest only or make payments.

They are very good
I have one on my house.

You basically take the value of your house less any mortgage you already have on it and the difference is what they will let you borrow. It's not quite that simple. I own my house free and clear but my line of credit is actually about $50,000 less than what they valued my house at.

What I can do with the line of credit is borrow on it. Right now, I have zero borrowed on it. But, if I decided I needed $10,000 for something, I could borrow it, no questions asked, as I already have more than that in the line of credit.

the good thing about it as opposed to a personal loan is, that since it's tied to my house, the interest is deductible so if I went and bought a car with that $10,000, I'd be making a house payment and could deduct the interest where I couldn't do that with a car payment.
It's just a way for the lending institution to take some security if you don't have any collateral except your house. They register a mortgage against your house for the maximum line of credit that they are willing to let you have.

For instance, if you have equity of $50,000 in your house, they might put a mortgage on it for $50,000. This doesn't mean you have to borrow that amount. You can borrow any amount UP TO the limit they have registered. That way, the bank's security is in place whenever you do decide to borrow.
A home equity line of credit works with the available equity that you have availabe and in most cases is a 2nd mortgage. The home equity line of credit is a revolving product meaning its open-ended much like a credit card except when you use it your using the equity in your home. There are two types variable and fixed lines of credit. The variable line has a floating interest rate determined by the current prime rate and the fixed rate line of credit never changes. The best thing about it is that you can write -off the interest because its a home loan product. Its also open-ended so you would never have to apply for the loan again. The best thing to know before you get involved with a home-equity loan are the closing cost and the points charged to you. There are also application costs so make sure that you shop around and get the best bang for your buck.
When you have a HEQ line of credit you have a the amount of money you have requested in your loan put into an account that you can write checks on as you need it. On mine I have 10 years to use the money and fifteen years to repay it all back. As you pay it back it becomes available to borrow again. This is where you have to be careful. On my loan I only receive a monthly interest bill. If you only make the interest payment and nothing on the principal you will have a balloon payment at the end of the term of the loan. These types of loans also have a variable interest rate. My rate(7 3/4%) is more than double what it was a little over a year ago. Hope this helps.