What is a Home Equity Line of Credit?

One of the biggest perks of homeownership is the ability to be able to access up to 80% of the equity built up in your home. A home equity line of credit or “HELOC”  is secured against the value of your home equity and acts as a revolving source of funds, much like a credit card, that you can access when you choose. HELOC rates are typically lower than personal loan rates.

Using the same example from Part 1 of this series, let’s say your home’s market value is $1,000,000 and let’s say your bank allows a home equity take out up to 80% of the property’s value - 80% of $1,000,000 is $800,000. If you subtract the outstanding mortgage balance of $300,000 from $800,000, your home equity take out allowance is $500,000.

Though the total equity amount you have built up is $700,000, you typically can’t take out that full amount from the bank without selling your property.

Follow for part 3 next week to find out what some savvy investors use their HELOC product for!