How Does a HELOC Work?

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If you need some extra money to make a big purchase, renovate your home, or pay the balance on a high interest credit card, a HELOC (home equity line of credit) may be just what you are looking for. A HELOC is a type of revolving credit secured by the equity in your home. This is an open ended loan that may be paid down or charged up for the term of the loan, similar to a credit card. The interest rate fluctuates (generally monthly).

The lender will set your credit limit (the maximum amount you can borrow) with the HELOC. In determining your credit limit, your pay-rate, outstanding debt, credit status and other financial obligations will be reviewed. An appraisal is needed on your home to assess the property's present market value. Your property's market value, subtracted from your remaining mortgage loan balance will help to determine your particular credit limit.