Equity

• Equity refers to the cash value of a home less any outstanding mortgage obligations. Equity represents the homeowner's ownership interest in a property.
  
  

Lending Percentage

• Many lenders use a percentage of the home's value (e.g., 75 percent), along with credit history, income and other obligations to determine the credit limit.
  
  

Example

• A lender extends a 60 percent equity line of credit on a home appraised at $200,000 and the homeowner has a $70,000 mortgage obligation. The homeowner has a potential line of credit of $50,000 ($200,000 x 60% = $120,000) - $70,000 = $50,000).
  
  

Convenience

• When a homeowner receives approval for an equity line of financing, she typically can borrow from that line, up to the credit limit, any time she wants. Most equity credit lines come with checks or a credit card for use.
  
  

Truth in Lending

• If obtaining an equity line of credit on a primary dwelling, the Truth in Lending Act gives the borrower three days from the account opening date to cancel the credit line.