 TITLE: What is a Line of Credit? CONTENT: Unsecured and Secured Lines of Credit\n-------------------------------------\nLines of credit may be secured loans or unsecured loans. With a secured loan, you put up a personal asset as collateral, which the lender can seize if you fail to repay the loan. With an unsecured loan, the lender issues credit after reviewing your finances and credit history and determining you are likely to repay the loan. Unsecured credit is riskier for lenders than secured credit, so they typically charge higher interest rates and fees for unsecured credit lines.\nMost personal lines of credit are unsecured, but there are two popular types of secured personal credit lines:\n*   A home equity line of credit (HELOC) allows you to borrow against the equity in your home—that is, the amount by which its appraised value exceeds the unpaid balance on your mortgage—and uses your home as collateral. You can typically borrow 60% to 85% of your home's equity. If, for example, you have paid off $200,000 in mortgage principal on a $500,000 mortgage, your unpaid principal equals $300,000; and if your home is appraised for $600,000, your equity would be that appraised value less the unpaid principal ($600,000 ᠆ $300,000), or $300,000. If a lender agreed to lend you 85% of your home equity, in this example, you could qualify for a HELOC of up to $255,000.\n    HELOCs typically have draw periods of five to 10 years, followed by repayment periods of 10 to 20 years.\n*   A CD-secured line of credit uses money you have on deposit in a certificate of deposit (CD) as collateral. You may be able keep a CD-secured line of credit open for more than the three- to five-year spans that are common with unsecured personal lines of credit. END