Let's say you're a homeowner with a horrible master bathroom. You want to rearrange, but you don't see how you can afford it. According to truthinequity, the average cost for that job is about $9,400, and there's no way you can cut that amount out of your budget. One day you get a letter from your bank offering you the chance to open a home equity line of credit (HELOC). It explains that this is one way to leverage your home's value for money. The letter states that you can borrow up to $30,000 this way, for only 5% interest.

When you take out a line of credit for your equity, you are borrowing money from the bank from your home as collateral. HELOCs are different from other types of home loans because you don't borrow a fixed amount and pay it back over time. Instead, a HELOC gives you access to a pool of cash that you can dip into if you need to. Like a credit card, a HELOC is a revolving loan.

You can borrow any amount up to the credit limit. Then you can repay all or part of the balance such as paying your credit card bill and re-sign it. In other words, the size of the loan can expand and contract to meet your needs.