Home Equity Line of Credit

An increasingly more popular way of borrowing against the equity in your home is through a home equity line of credit. (HELOC) This type of credit is a secure line of credit with your house as the collateral and is open for a fixed time such as 8 years.

How It Works
Once you are approved, you will have a maximum amount of credit that you will be able to borrow at any time while the line of credit is open. A lot of banks come up with the credit limit by taking a certain percentage of the value of the home and then reducing that amount by the balance that is owed.

For example:
Appraised value of home: $200,000
Percentage of appraised value: $150,000 ($200,000 x 75%)
Less mortgage debt of $100,000
Potential credit line: $50,000

There are other factors that determine the credit limit such as the income, credit rating and other debts you may have.

Shopping for a HELOC
Compare rates from various lenders and banks for the best plan. Sometimes the lowest rates may not be the best. Factor in the closing costs and the terms and conditions of each HELOC plan. Credit unions usually give the best rates, so check those out.