Home Equity Line of Credit: the Facts

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When you want to borrow some money to consolidate funds or make a large purchase, a home equity line of credit (HELOC) may be useful. 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, much like a credit card. The rate of interest fluctuates (usually monthly).

The lender will specify your credit limit (the biggest amount you can borrow) in the HELOC. In setting the credit limit, your salary, debts, credit status and any other monetary obligations will be taken into account. An appraisal will be required on your home to assess the home's market value. Your credit limit will be based on all of the above, in addition to a fraction of your property's appraised value, which is then subtracted from the balance owed on your existing mortgage.