How Does a HELOC Work?

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When you want to borrow some money to consolidate debts or purchase a big-ticket item, a home equity line of credit (HELOC) can be useful. A HELOC is a kind 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 a set length of time, much like a credit card. The rate of interest changes (typically monthly).

In a HELOC, the lender approves you for a particular amount of credit - the maximum sum you may borrow at any one time under the plan. Your credit score, rate of pay, debt and other financial circumstances can determine your credit limit. You are required to do an appraisal to assess your home's present value. Your home's current value, subtracted from your remaining mortgage balance will help to set your specific credit limit.