How Does A Home Equity Line Of Credit Work?

Home equity lines of credit work by using your home as collateral and are a revolving limit set at a specific amount deemed by your lender.

How Does It Work?

Lenders determine your credit limit by looking at your home’s appraised value, and then use a percentage of that amount and subtract it from the existing mortgage balance. They also determine this by looking at your ability to repay it and by examining your debts, income, and other obligations.

Some lenders have a fixed period for the borrowing time, after which you may renew your line of credit, if available. Some lenders may require that you pay the balance in full at the end of the fixed period, and others might offer a fixed period for repayment, such as 10 years.

Once you are approved, you may borrow against the line of credit up to your credit limit. In some instances, you will have special checks to write, and in others, you may have a credit card.

How Can I Use It?

Several homeowners use this line of credit to pay for large expenses such as education, medical bills, or home improvements, but your lender may have limitations on what you can do with the money, so check with them before you begin.