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Simple English definitions for legal terms
home-equity line of credit
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A quick definition of home-equity line of credit:
A home-equity line of credit is a type of loan that a bank gives to a homeowner. The bank uses the homeowner's equity in their home as collateral for the loan. This means that if the homeowner doesn't pay back the loan, the bank can take their home. It's important to be careful when taking out this type of loan and make sure you can afford to pay it back.A more thorough explanation:
A home-equity line of credit is a type of loan that allows homeowners to borrow money using their home as collateral. The amount that can be borrowed is based on the equity in the home, which is the difference between the home's value and the amount still owed on the mortgage.
For example, if a homeowner's house is worth $300,000 and they still owe $200,000 on their mortgage, they have $100,000 in equity. They may be able to borrow up to a certain percentage of that equity, such as 80%, which would be $80,000.
The borrower can access the funds as needed, up to the approved limit, and only pay interest on the amount borrowed. The loan is typically repaid over a set period of time, such as 10 years.
One example of using a home-equity line of credit is to make home improvements or renovations. The homeowner can borrow the money needed for the project and pay it back over time. Another example is to use the funds for unexpected expenses, such as medical bills or a major car repair.