The home equity line of credit is similar to the home equity loan. The primary difference is that the line of credit provides the borrower with a checkbook, instead of one lump-sum check.
The borrower can use the home equity credit line checkbook to withdraw funds for any purpose. The main advantage of the credit line is its flexibility and potential savings. The borrower can "disburse" loan funds as he or she needs them, and the borrower is only charged interest on the current balance.
For example, if Nora (in the preceding example) obtained a home equity line of credit for the $200,000, she can space out her withdrawals to fit her business needs and minimize interest charges. She can take out $50,000 now and perhaps $100,000 a couple of months later. She will only be charged interest on her current balance.
The home equity credit line has slowly become a popular financial planning tool. Homeowners can store the checkbook away for emergency purposes and will only pay interest on whatever balance they maintain.
For more information, please review the "Home Equity Lines of Credit" article in this section.
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