How Does a Home Equity Line of Credit Work?

How Does a Home Equity Line of Credit Work

A home equity line of credit (HELOC) lets you access money you’ve built up in your home – up to 80% of the appraised value – as you need it, and you’re only charged interest on the portion you actually use.

A HELOC is a popular way to access home equity and presents many benefits over a more traditional loan or mortgage refinance.

Because a HELOC is secured by the home itself and, therefore, categorized as lower-risk by lenders, the interest rate tends to be lower than other types of loans, which means lower payments and a lower loan cost of borrowing over time.

Funds are ready when you need them

Once you qualify for a HELOC, the money is ready for you to use for whatever you need. And because it’s a type of ‘revolving credit’, as soon as you pay it down, the funds are available to use once again without having to requalify.

When relying on a more traditional bank loan, you receive a set amount of money in one lump sum, which needs to be paid back over an agreed term and interest rates tend to be higher. If you require more money in future, you must requalify for each loan.

A HELOC also provides access to a large sum of money if you have a lot of equity built up in your property without affecting your existing mortgage, as it uses your equity as collateral.

With a mortgage refinance, since you’re applying for a new mortgage, you’re required to pay the associated fees, which can add up. You may also be faced with higher interest rates and additional changes to the term of your original mortgage agreement.

Some of the most common uses for HELOCs include paying off unsecured debt, freeing up cashflow, funding renovations, sending kids to school and purchasing additional properties.

Have questions about home equity lines of credit and how this solution may be able to benefit you? Answers are just a call or email away!

Arash Sef
Mortgage Agent
Lic# M15002076 / 12340
📞 647-588-0488