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In the article About.com - Six Ways To Prepare Now For Rising Interest Rates it states:

The average US household debt, according to the Fed, is $20,000, not including mortgages. Most of that debt is credit card debt and home equity lines of credit.

what is the difference between home equity lines of credit and mortgages?

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A mortgage loan is essentially an annuity held by the bank, meant to be paid out regularly, over the long term, backed by a mortgage. When most people say "mortgage", they mean "mortgage loan".

A mortgage is a lien registered against a property allowing the lendor to seize and sell the property in the event of default.

A home equity line-of-credit (HELOC) is a mortgage-backed LOC, usually at a higher rate than a mortgage loan. It is a true line of credit, in that you can borrow and pay back at any time. The amount you can borrow is capped by the amount of equity you hold in the house (i.e. the amount of principal of the mortgage loan you have paid off.)

For example:

  • House value: 450k
  • Downpayment: 50k
  • Original Mortgage Amount: 400k
  • Current balance: 325k

Very often, the principal paid off, 75k, will automatically be converted into credit room on the LOC. That means you can borrow up to 75k at any time. (But!!!! this could mean you never pay off your mortgage loan!)

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  • Fine answer, but in our case, our HELOC is a lower rate than the mortgage.
    – JTP - Apologise to Monica ♦
    Commented Aug 16, 2011 at 20:35
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    "borrow and pay back at any rate" -- might be clearer to say "at any time", since "rate" is ambiguous in this context.
    – keshlam
    Commented Oct 14, 2023 at 14:44

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