What is a Line of Credit or home equity loan ?

  A "Line of Credit" can be a mortgage that is a revolving line of credit , it is also called a home equity loan ( it is a lein against your home and you must pay it off if you sell your home.  Usually you have to pay it off if you refinance but there are times that the bank allows you not to pay it off.  They call it resubordinating the loan and they charge you a fee for doing this.) A line of credit against your home or a home equity loan is a 2nd mortgage.  It is variable rate so long as you can pull more money out.  They usually will give you a fixed rate it you no longer have the ability to take more money out.

Or a Line of credit is sometimes not secured against the house and is just based on your good name and good credit.

  The interest rate adjusts only when the Federal Reserve raises or lowers the Federal Discount Rate.  Banks then immediately adjust the Prime rate, which is the cost of money that Banks charge their best customers. When a Bank raises or lowers Prime your loan will adjust upwards or downwards. The Federal Reserve doesn’t adjust rates monthly so your "Line of Credit" could stay at its current interest rate for months, sometimes a year or more.

  The "Line of Credit"  or "home equity loan" can be a first or second mortgage on your home depending on whether or not you have any outstanding mortgages on your home at the time that you apply for a loan. 

 A "Line of Credit"  or "home Equity loan" is a loan that does not require payments on it until you use it.  For example, if you were to borrow $50,000.  The Bank would record a lien on your home for $50,000.  If you don’t take a draw against this loan there would not be a payment assessed against you ever.  When you start taking draws on your line of credit you would then be assessed interest only on the amount that you borrow.

  The line of credit allows you to borrow money up to the amount that you initially borrowed.  You can pay it off or pay it down and continue to use your "Line of Credit" remaining balance over and over again during its draw period.

  When the "Line of Credit" matures, you must either pay the remaining balance off,  refinance your home or in many cases your "Line of Credit" will automatically become a fully amortized loan for a period of years with equal monthly payments (still tied to prime) and the draw feature during this period will no longer be able to be used.

A home equity loan or line of credit usually has a higher rate than a first mortgage.  This is because it is a higher risk to the bank.  They are in the second position to get their money.
They can be a 5, 10, 15, or 20 year loan.  Very seldom is it a 30 year loan.  Remember the shorter the period the better the rate usually is but the payment will be higher.

How does a "Line of Credit" Work?