What type of mortgage provides a line of credit that can be drawn upon as needed until the maximum amount is reached?

What type of mortgage provides a line of credit that can be drawn upon as needed until the maximum amount is reached?

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

Answer: (C)

A Home Equity Line of Credit (HELOC) is a mortgage option that allows homeowners to borrow against the equity of their home. It functions similarly to a credit card, in that a borrower is given a maximum credit limit based on the equity in their home and can draw funds as needed, up to that limit. This flexibility allows homeowners to access funds for various purposes, such as home improvements, education expenses, or consolidating debt. The HELOC typically has a draw period during which the borrower can access the funds, followed by a repayment period where they must begin to pay back the amounts drawn. This feature of being able to withdraw funds as required until reaching the credit limit differentiates it from a traditional home mortgage, which provides a lump sum at closing and requires fixed monthly payments. In comparison, a home mortgage generally entails a single upfront amount that is repaid over time with fixed payments, and a personal loan is typically an installment loan that provides a set amount over a fixed term without the ability to draw upon it as needed. A second mortgage, while it can also tap into home equity, typically functions as a lump sum loan and does not offer the same line of credit features as a HELOC.

A Home Equity Line of Credit (HELOC) is a mortgage option that allows homeowners to borrow against the equity of their home. It functions similarly to a credit card, in that a borrower is given a maximum credit limit based on the equity in their home and can draw funds as needed, up to that limit. This flexibility allows homeowners to access funds for various purposes, such as home improvements, education expenses, or consolidating debt.

The HELOC typically has a draw period during which the borrower can access the funds, followed by a repayment period where they must begin to pay back the amounts drawn. This feature of being able to withdraw funds as required until reaching the credit limit differentiates it from a traditional home mortgage, which provides a lump sum at closing and requires fixed monthly payments.

In comparison, a home mortgage generally entails a single upfront amount that is repaid over time with fixed payments, and a personal loan is typically an installment loan that provides a set amount over a fixed term without the ability to draw upon it as needed. A second mortgage, while it can also tap into home equity, typically functions as a lump sum loan and does not offer the same line of credit features as a HELOC.