A home equity line of credit is for a homeowner who wants to borrow against their equity as the need arises, a home equity loan for one who knows the amount now, and either keeps any first mortgage as it is

A home equity line of credit (HELOC) is a line of credit secured by your home. The lender sets a limit against your equity, you borrow against it as you need to, and as you repay, that credit can become available to borrow again under the plan's terms. If you already have a mortgage, the line is a second mortgage behind it, and you pay it in addition to your first mortgage. The rate on a line can change, and because the home secures it, falling behind on the payments could cost you the home.

A home equity loan pays a single sum at closing and is repaid on a schedule the lender sets, while a HELOC lets you borrow as you need to, up to its limit, and borrow again as you repay, under the plan's terms. If you already have a mortgage, both leave it in place and sit behind it as second mortgages, where a cash-out refinance would replace it with a larger loan, pay you the difference in cash, and put the new loan's rate and terms in place of the ones you had. Regulation Z's ability-to-repay rule covers the home equity loan and the refinance, apart from certain exemptions, and excludes the line by name.

Yes, in circumstances Regulation Z lists. A lender may stop further borrowing or lower the limit while, among other things, the home's value has fallen significantly under the appraised value the line was based on, you are in default of a material obligation under the agreement, or a material change in your finances leads the lender reasonably to believe you cannot repay. In those cases it must send you written notice with its specific reasons, and once no circumstance that allows a freeze remains, it must restore the line, on your request if the notice says you must ask.

Apart from narrow exceptions, if a line is secured by your principal dwelling, federal law gives you, and any other owner whose principal dwelling it is, a right to cancel the line for a limited time. The lender's notice of the right must give the date it expires. You cancel by notifying the lender in writing; the security interest becomes void, and the lender must return what you paid to anyone in connection with the line. No money is released until the period has passed, unless everyone entitled to cancel waives the right in a signed, dated statement describing a bona fide personal financial emergency.

Be careful. The CFPB warns that using home equity to pay off other debts does not really pay them off: you are taking out one loan to repay another, and that loan is secured by your home, so if you cannot repay it, you could lose the home. The bureau also cautions against trading short-term debt for long-term debt at a higher cost to you.