How Do Home Equity Lines of Credit Work?

Series Summary

Buying a first home is a major milestone in the life of a twentysomething college graduate or a newly engaged couple. It’s one of those things people get excited about and look forward to for years, hoping that in six months, if reasonable interest rates and a healthy housing market hold, it will be the perfect time to start scouting for that perfect little fixer upper in a middle class neighborhood, preferably with good schools nearby, a local park, and an active community organization. But aside from the aesthetic and practical concerns associated with purchasing a home, there is a large financial quality to the process that often gets overlooked or under-emphasized. A house is one of the largest financial investments people will make over the course of their lives, and having their ducks in a row, so to speak, would be wise before they accept responsibility for a 15- to 30-year mortgage loan. In this free video series on personal finance from a licensed mortgage broker, find out about lines of business and personal credit. Want to know how the mortgage loan process works or how to improve a bad credit rating? Watch this free video series and find out how to manage credit debt.

Video Transcript

"Hi, so you've been thinking about getting a HELOC, or a Home Equity Line of Credit on your property. No problem, I'll let you know how to get those. My names is Adriel Torres, I'm the owner of ultimatecredittoday.com. HELOC's are second mortgages, basically, and the way they work is you get a lender, or a bank to give you a loan, and it goes on the second loan behind your first mortgage. And basically, let's say we'll use fifty thousand, let's say you get a HELOC for fifty thousand dollars, and you only take out, you're only using twenty thousand dollars of that line of credit. You're basically going to be paying the rate, or in this case, the payment's going to be based on how much you're borrowing, not on the entire line of credit. So if you're only using twenty thousand of the entire line, your mortgage payments are going to be based just on that twenty thousand dollars, and obviously if you take out more, then your accordingly your, your monthly payment will go up the more you use of that HELOC, or Home Equity Line of Credit. And that's exactly how HELOC's work. Again, my name is Adriel Torres and I'm the owner of ultimatecredittoday.com. Thank you very much."