A home equity line of credit (HELOC) has many different names such as equity line, equity account, and sometimes they are second mortgages. Unlike a second mortgage though, a HELOC is actually when a borrower receives a direction of credit instead of a cash pay-out and allows the borrower to withdraw different amounts of money at different times. The HELOC is very similar to a credit card in that it has a maximum credit amount that the borrower may draw from as they need cash. Generally banks and financial institutions offer between 75% to 80% of the exact value of your home and another important factor deciding the maximum loan amount is your credit history and FICO score.
To determine the limit of your HELOC, banks will decide upon the equity loan amount by deducting the sum of money still owed on the mortgage and start their calculations at 75 percent of that value. If your home was appraised at $100,000, the lender would typically look at a maximum of $75,000 or 75 percent. If you had paid off $50,000 of your $90,000 loan, the lender would then deduct the remaining $40,000, which would mean you would have a maximum of $35,000 available on a HELOC.
Suzy Orman gives her take on how a Home Equity Line of Credit (HELOC) and a Home Equity Loans (HELOAN) basically work.
Related posts:
- Second Mortgage Loans and Home Equity Line of Credit It’s not surprising that some homeowners confuse the terms second mortgage and home equity loan. Both are an equity in the property is sufficient to support secondary financing. If homeowners understand the differences between these two will enable homeowners to make the best financial decision to fit their needs. A second mortgage A second mortgage [...]...
