What financing option allows a borrower to access equity for personal use?

The Home Equity Line of Credit (HELOC) is the financing option that allows a borrower to access equity for personal use. A HELOC functions like a credit card, where borrowers can draw from the equity in their home up to a set limit. This type of financing enables individuals to use funds for various purposes, such as home improvements, debt consolidation, or personal expenses, while only paying interest on the amount they actually withdraw.

The underlying principle is that as the value of the home increases or as the borrower pays down their mortgage, they build equity that serves as collateral for this line of credit. The flexibility of borrowing and repayment makes a HELOC an attractive option for those needing access to funds while taking advantage of the equity they have been building in their property.

Other financing options, like a cash-out refinance, also allow access to equity but require the borrower to refinance their existing mortgage, which can involve different terms and conditions. Revolving credit typically refers to lines of credit that are not secured by real estate, while a conventional loan is primarily a method for purchasing or refinancing property but does not inherently provide access to equity for personal use as a HELOC does.