Home Equity Line Of Credit - HELOC

See: Line of Credit.

Twenty years ago, you put $50k down and took out a loan for $200k to buy your 3-bedroom McManse. Since then, you've paid down your mortgage to be "only" $80k today, and in that same time period, the market value of your home has risen to be worth $500k.

You have $420k in equity in your home, and you can borrow against that asset or equity, usually at cheap prices, because if you ever don't pay the $40k you've subsequently borrowed, then whomever you borrowed your HELO from has the right to sell your home, collect their fees and penalties, and then give you whatever pittance is left.

HELOs are great if you're certain you won't run into the buzzsaw of non-payment, because you're essentially borrowing "from yourself"...or at least you're using your own relatively safe collateral to back up your promise to pay back the HELO. Hence, they're usually low risk to the lender, and the cost of renting that line of credit is cheap.