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A home equity line of credit (HELOC) can be useful when you are looking to borrow a lump sum to renovate your home, make a large purchase, or consolidate debt. Using your home equity as collateral, a HELOC is revolving credit. This is an open ended of loan that can be paid down or charged up for the term of the loan, similar to a credit card. The loan interest rate usually fluctuates monthly
In a HELOC, your lending institution will approve you for a predetermined credit amount - the maximum sum you may borrow at any given time with the agreement. Your credit score, income, debt and other financial circumstances can determine your credit limit. An appraisal is needed on your home to determine the home's present market value. Your credit limit will be determined on all of the above, as well as a percentage of your property's appraised market value, which is then subtracted from the balance owed on your existing mortgage loan.