How Does a HELOC Work?

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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. A HELOC is a type of revolving credit secured by the equity in your home. This open-ended loan may be be charged up or paid down during the loan term. The loan interest generally fluctuates monthly

With a HELOC, the lending institution will approve you for a particular amount of credit - the highest amount you may borrow at any given time with the agreement. Your credit score, rate of pay, debt and other financial information will determine your credit limit. An appraisal is needed on your home to determine the property's market value. Your credit limit will be based on all of your financial information, in addition to a fraction of your home's appraised value, which is subtracted from the balance owed on your present mortgage loan.