How Does a HELOC Work?

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If you want to borrow some money to consolidate debts or buy a big-ticket item, a home equity line of credit (HELOC) might be useful. A HELOC is a type 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 term of the loan, much like a credit card. The interest rate fluctuates (usually monthly).

The lender will set your credit limit (the maximum you may borrow) in the HELOC. Your credit status, income, debt and various other financial circumstances can affect your credit limit. So that the lender is able to ascertain your property's current market value, you'll need an appraisal on your property. Your home's current value, subtracted from your remaining mortgage balance helps to set your specific credit limit.