What is a HELOC?

What is a HELOC?

Senior Loan Officer
Brian Decker
Published on December 7, 2022

What is a HELOC?

HELOC stands for a home equity line of credit, which is a line of credit secured by your home that offers a revolving credit line for other big expenses or to refinance debt on other high-interest loans, such as credit cards. Home equity lines of credit typically have a standard low-interest rate which is tax deductible. 

How Does a HELOC work?

When you borrow with a HELOC, you're utilizing the equity in your home, with your house as the collateral for the line of credit. When you repay your borrowed balance, the amount of available credit is replenished, similar to a credit card.

How Do You Qualify for a HELOC?

In order to qualify for a HELOC, you must have available equity in your home. In other words, the amount you have left to pay on your loans must be less than the value of the home. Usually, you can borrow up to 85% of the value of your home, after subtracting the amount you owe. A lender will typically look at your credit history, employment history, monthly income, monthly debts and more. This process is similar to the vetting process for when you first get a mortgage.

Interest Rates

Variable –

If your home equity line of credit has a variable interest rate, the rate will change each month. The interest rate is calculated from an index and a margin. An index is a financial indicator that banks use to set rates on many common products that consumers take loans out on. One common source for banks to look to is the U.S. Prime Rate, published in The Wall Street Journal as the index for home equity lines of credit.

Fixed –

Ask your lender if they have any options for your HELOC to be converted to a fixed rate, even if it is just a portion. A fixed interest rate can help you maintain stable payments and costs.

Services with Modern Lending

If you're looking for a reliable loan company, look no further than Modern Lending. Our loan officers are all extremely knowledgeable in their field and can help you secure the best line of credit possible. 

Senior Loan Officer
Brian Decker Senior Loan Officer
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