Home Equity Line of Credit
How does a line of credit work?
A line of credit is different than a traditional loan. With a traditional loan, you receive a lump sum of cash. You will then immediately start making payments on the balance you owe. With a line of credit, you have access to a set amount of cash, but you can withdraw that money in “as-needed” portions. You will only pay interest on what you borrow.
For example, if your line of credit is $15,000 and you don’t withdraw anything, you won’t have to pay any interest. If you withdraw $5,000, you will pay interest on that $5,000. In this way, a line of credit works very similarly to a credit card, but the interest rate is typically much lower.