HELOC

The home equity line of credit, or HELOC, works differently than the 100% home equity loan in that it is an open end loan.  Instead of a lump sum and fixed interest rate, the HELOC is a revolving credit where the borrower can choose when and how much to borrow against the equity, at variable rates.

Initially, a dollar and time limit will be issued by the lender. Once you reach the dollar limit, or pass the timeframe, you will be unable to take out additional monies even if you had some available.

Some prefer the HELOC because they have the means to borrow quickly in an emergency situation.  You can open a HELOC on your equity beyond what you actually need, and the remaining can be used just in case the original sum was not enough, or if an emergency arises.

For instance, lets go back to our appraised $100k home scenario.  You owe $40k on this house still, giving you $60k in equity.  If you have a home improvement project that is estimated to cost you $20k, you can open up a $40k HELOC against your $60k max  equity.  That way you get the $20k for your project and have another $20k just in case you go over budget, or if an emergency arises such as totalling your car.