What Repayment Period Should I Expect on a Home Equity Line of Credit?

Home equity loans or a home equity line of credit is a loan borrowers can take out against the market value of their home. These loans, however, are not equal to the amortized value of the first mortgage.

Function

A home equity line of credit is considered a revolving trade line. In this scenario, after a homeowner pays off the balance of the loan, the original loan amount is then available for use on a continual basis. Thus there is no fixed repayment term as there is with a traditional home equity loan.

Time Line

The time line to pay back a home equity loan typically ranges from five years to seven years. However, home equity loans can be extended to as long as 15 years, dependent upon the equity amount.

Types

Home equity loans come in two formats: either a revolving line of credit as mentioned or a fixed rate and term for a home equity loan. Prior to making a decision on which is best, consult with a licensed mortgage broker.

Benefits

The largest benefit to a home equity line of credit is that it allows consumers to tap into their home equity for major life expenses such as home remodeling or education. Since it is a revolving line of credit, it is the easier of the two types to use.

Warning

Consumers who do not pay back a home equity loan in a timely manner can face foreclosure. Since the home equity lender has a lien against the property for the amount of the equity held, nonpayment can have severe consequences.

References

• Federal Reserve Board: What You Should Know About Home Equity Loans
• FTC: Facts for Consumers
• Bills: Home Equity Line Basics