How Does a HELOC Work?

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When you need some extra cash to make a large purchase, renovate your home, or pay off a high-interest credit card, a HELOC (home equity line of credit) may be just what you are looking for. Using your home equity as collateral, a HELOC is revolving credit. This open-ended loan may be be charged up or paid down over the set term of the loan. The loan interest rate typically fluctuates every month

The lender will set your credit limit (the maximum amount you may borrow) in the HELOC. Your credit score, rate of pay, debt and various other financial information will affect your credit limit. An appraisal is required on your home to determine the property's market value. Your property's current value, subtracted from your remaining mortgage balance will help to determine your particular credit limit.