Home Equity Line of Credit (HELOC)
A home equity line of credit, or HELOC, is a revolving line of credit that uses your home’s current market value as collateral. When you have 20% or more equity in your home, you can set up a line of credit that can be easily accessed and used for just about anything. It is fully open for prepayment without penalty and can be used for home renovations, investments, a vacation, a child’s education, or debt consolidation. You can borrow as much as you need, up to your available credit limit, and for the first 5, 10 or 25 years, you can choose to pay as little as interest-only. Up to 65% of your home’s value may be used. If the HELOC is combined with a regular mortgage the combined value of your HELOC and mortgage can be up to 80% of your home’s value. As you pay off your mortgage you may be able to borrow more from your HELOC.
Here’s an Example:
You’ve had your home appraised by an approved appraiser off the lender’s list. Your home’s current market value is $350,000. Your mortgage balance on your home is $200,000 and you have no other liens other then the mortgage. The disposable equity in your home is calculated by multiplying your home’s value by 80% and then subtracting what you owe on your mortgage.