What type of loan is secured by a mortgage and establishes a credit line that can be drawn upon as needed?

What type of loan is secured by a mortgage and establishes a credit line that can be drawn upon as needed?

• A. Home Equity Loan
• B. Home Equity Line of Credit (HELOC)
• C. Personal Loan
• D. Fixed-rate Mortgage

Answer: (B)

A Home Equity Line of Credit (HELOC) is a type of loan that is secured by a mortgage and provides borrowers with a flexible credit line that they can draw upon as needed. Unlike a traditional home equity loan, which disburses a lump sum of money, a HELOC allows for borrowing against the equity in the home up to a specified credit limit. Borrowers can withdraw funds as necessary, repay them, and borrow again, much like a credit card. This flexibility makes HELOCs particularly appealing for homeowners who may need access to funds over time for various purposes, such as home renovations, education costs, or other expenses. The payment terms are generally structured with interest-only payments for a certain draw period, followed by a repayment period where principal and interest payments begin. In contrast, a Home Equity Loan typically involves a fixed amount disbursed upfront, meaning it lacks the revolving nature of a HELOC. Personal loans are typically unsecured borrowings that do not rely on home equity and fixed-rate mortgages involve a set repayment schedule with a fixed interest rate, which does not allow for the borrowing flexibility that a credit line provides.

A Home Equity Line of Credit (HELOC) is a type of loan that is secured by a mortgage and provides borrowers with a flexible credit line that they can draw upon as needed. Unlike a traditional home equity loan, which disburses a lump sum of money, a HELOC allows for borrowing against the equity in the home up to a specified credit limit. Borrowers can withdraw funds as necessary, repay them, and borrow again, much like a credit card.

This flexibility makes HELOCs particularly appealing for homeowners who may need access to funds over time for various purposes, such as home renovations, education costs, or other expenses. The payment terms are generally structured with interest-only payments for a certain draw period, followed by a repayment period where principal and interest payments begin.

In contrast, a Home Equity Loan typically involves a fixed amount disbursed upfront, meaning it lacks the revolving nature of a HELOC. Personal loans are typically unsecured borrowings that do not rely on home equity and fixed-rate mortgages involve a set repayment schedule with a fixed interest rate, which does not allow for the borrowing flexibility that a credit line provides.