How Does a HELOC Work?

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When you need some extra cash to make a big purchase, remodel your house, or pay off a high interest credit card, a HELOC (home equity line of credit) might be just what you are looking for. 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 a set length of time, similar to a credit card. The loan interest rate typically fluctuates monthly

The lender will specify your credit limit (the maximum amount you may borrow) in the HELOC. Your credit score, rate of pay, debt and other financial circumstances will affect your credit limit. An appraisal is needed on your house to determine the home's market value. Your home's current value, subtracted from your remaining mortgage loan balance will help to determine your particular credit limit.