A home equity line is a form of revolving credit in which your home serves as collateral. Because your home is likely to be your largest asset, you may want to use your credit line for major items such as education, consolidation, financing an education, planning a wedding, or home improvements and not for day-to-day expenses. With a home equity line, you will be approved for a specific amount of credit -- your credit limit -- meaning the maximum amount you can borrow at any one time while you have the home equity line of credit. Many lenders set the credit limit on a home equity line by taking a percentage (say, 85 percent) of the appraised value of the home and subtracting the balance owed on the existing mortgage.

Appraisal of home: Percentage: Percentage of appraised value: Less mortgage debt: Potential credit line:

$100,000 x 85% $ 85,000 -$ 40,000 $ 45,000

In determining your actual credit line, the lender also will consider your ability to repay, by looking at your income, debts, and other financial obligations, as well as your credit history.

Our home equity line of credit has a set fixed time during which you can borrow money, which is 10 years. The following 20 years only permit you to repay on the outstanding balance. You will need to re-finance the home equity line of credit if you want to borrow funds after the initial 10 year period. Once your home equity line of credit has been established, you will be able to borrow up to your credit limit whenever you want. You will be able to draw on your line by using special checks or advancing funds into your regular checking account.

A home equity line of credit is a flexible account that allows for repeated borrowing without having to re-apply each time. A more traditional second mortgage loan provides you with a fixed amount of money repayable over a fixed period. Usually the payment schedule calls for equal payments that will pay off the entire loan within that time. You might consider a traditional second mortgage loan instead of a home equity line if, for example, you need a set amount for a specific purpose, such as an addition to your home.

In most cases, a recurring need for funds suggests the need for a home equity line of credit. A good example of this are tuition payments.

It is a variable rate.