How Does a HELOC Work?

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If you need to borrow cash to consolidate funds or make a big-ticket purchase, a home equity line of credit (HELOC) may be useful. A kind of revolving credit, a HELOC is secured by the equity in your home. This is an open ended loan that can be paid down or charged up for the term of the loan, similar to a credit card. The loan interest typically fluctuates monthly

Your lender will set your credit limit (the highest amount you may borrow) with the HELOC. In determining your credit limit, your salary, outstanding debt, credit history and additional financial obligations will be considered. An appraisal is required on your house to determine the property's current market value. Your property's current value, subtracted from your remaining mortgage balance helps to set your particular credit limit.