What is an equity line of credit?

An equity line of credit is a financial product that allows homeowners to borrow against the equity they have built in their property. Equity is the difference between the market value of a home and the amount still owed on the mortgage. When homeowners have significant equity, they can access a line of credit, which functions similarly to a credit card, giving them the flexibility to borrow as needed, up to a certain limit, and repay over time.

This tool is often used for various purposes such as financing home improvements, consolidating debt, or making major purchases. It provides homeowners with a way to leverage their property's value without having to sell or refinance their home.

The other choices do not accurately describe what an equity line of credit is. A financial instrument for investing in real estate pertains to different investment strategies rather than borrowing against home equity. A short-term rental agreement refers to leasing property on a temporary basis, which is unrelated to borrowing against equity. Similarly, a mortgage with a fixed interest rate describes a specific type of home loan, which differs fundamentally from the borrow-as-you-go nature of an equity line of credit.