A home equity line of credit or HELOC is a revolving line of credit backed by your home. You shall be able to avail of the lower interest rate than a traditional line of credit. As a rule, the sum of your mortgage and home equity line of credit cannot be more than 80% of your home’s value.
To verify how much equity is yours, you can try this simple computation:
(Home Value x 80%) - current mortgage amount
The remaining figure is the equity you can tap through a HELOC. Make sure that the HELOC balance is at 65% or less of your home’s value.
The entire credit available at your disposal is not advanced right away. Instead, you can withdraw any amount of the HELOC as you need and only pay for the interest of the amount you withdraw. The interest fluctuates daily with the prime rate, hence it is a variable rate. Most commonly, HELOC rates is higher than a variable mortgage rate; and the relationship to the prime is not always consistent and can also change at the lender’s discretion.
With tapping into your home equity line of credit is an additional service, you will not be needing to break your current mortgage and have extra cash.