HELOC Loan: What is a Home Equity Line of Credit?

by Marianne Salina
Loan Page Columnist

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HELOC: What is a Home Equity Line of Credit?

If you are a homeowner with a mortgage and you are seeking a way to finance a large expense, a home equity line of credit may be a great way to do it. A HELOC allows you to access a line of credit, using the built up equity in your home. With this line of credit, you will be approved for a maximum credit usage in a certain period of time, allowing you to borrow varying amounts of money within these limits. Generally, you should only have to pay for what you use unlike in a home equity loan where you get one lump sum and have to pay for all of it regardless.

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How Does a HELOC Work?

Your home equity line of credit is usually established by taking a percentage of your homes appraised value and subtracting this number from the balance you still owe on your mortgage. There is often a fixed time period under which you can borrow from your credit limit, and generally home equity credit is used only for large expenses such as financing education.

Is a Home Equity Line of Credit Right for You?

Clearly with the number of home loans out there, it is critical to research different borrowing plans, interest rates, and to know your limits as a buyer. When considering home equity line of credit, it is important to look at the APR (annual percentage rate), as well as the costs of setting up the line of credit. Additionally, you should consider how you intend to pay back the money. Home equity is an excellent way to utilize your biggest asset as a homeowner, but make sure this type of financing works best for you.

Sources:

When Your Home Is On The Line, The Federal Reserve Board

30-Year Fixed Rate -

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15-Year Fixed Rate -

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*National Rates