How Does a HELOC Work?

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If you want to borrow cash to consolidate debts or make a big-ticket purchase, a home equity line of credit (HELOC) might be useful. Using the equity in your home as collateral, a HELOC is revolving credit. This is an open-ended of loan that may be paid down or charged up for the term of the loan, similar to a credit card. The loan interest rate usually changes monthly

With a HELOC, the lending institution approves you for a predetermined amount of credit - the maximum sum you can borrow at any one time. In setting the credit limit, your income, debts, credit status and additional monetary circumstances will be considered. You will be required to have an appraisal to determine your home's present value. Your home's up-to-date value, subtracted from your remaining mortgage loan balance will help to determine your particular credit limit.