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A home equity line of credit (HELOC) can be helpful when you are looking to borrow a lump sum to remodel your home, make a large purchase, or consolidate debt. Using the equity in your home as collateral, a HELOC is revolving credit. This is an open ended loan that can be paid down or charged up for the term of the loan, much like a credit card. The interest rate fluctuates (generally monthly).
With a HELOC, the lending institution approves you for a specific amount of credit - the largest amount you are able to borrow at any given time. In determining your credit limit, your pay-rate, outstanding debt, credit status and additional monetary obligations will be reviewed. An appraisal will be required on your house to determine the home's present market value. Your credit limit will be based on all of the above, as well as a fraction of your property's appraised value, which is then subtracted from the balance owed on your current mortgage loan.