How Does a HELOC Work?

If you need some extra cash to make a large purchase, renovate your house, or pay the balance on 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 of loan that can be paid down or charged up for the a set length of time, much like a credit card. The loan interest rate usually changes monthly

With a HELOC, the lender approves you for a predetermined credit amount - the largest sum you are able to borrow at any one time under the plan. In setting the credit limit, your salary, debts, credit status and other financial circumstances will be taken into account. An appraisal is required on your home to assess the home's market value. Your credit limit will be set on all of your financial information, as well as a percentage of your home's appraised value, which is subtracted from the balance owed on your existing mortgage.