What is a Home Equity Line of Credit (HELOC)?
A Home Equity Line of Credit (HELOC) is a loan secured by the available equity in your home. Your available equity is the difference between today’s market value or appraised value and the current balance of your mortgage, and any other loan secured by the property.
How Much Home Equity Do I Have?
As mentioned above, your available equity is the difference between today’s market value or appraised value and the current balance of your mortgage, and any other loan secured by the property.
For example, let’s say you bought a home 10 years ago and the remaining balance of your mortgage is $150,000. You have an appraisal completed on your home to determine its current market value. The appraisal value of your home comes back at $325,000. Your available equity is $175,000.
Special Note: Even though your available equity is $175,000, your maximum HELOC limit will be less than this amount. That’s because most lenders will only provide a HELOC up to a maximum of 80% of the current market or appraised value.
Why Is A HELOC Considered an Attractive Loan Option?
A HELOC is one of the lowest-risk loans available on the market because it is secured by the available equity in your home. As a result, the interest rate charged for a HELOC is significantly less than rates for Personal Loans, Credit Cards, etc.
In addition, the interest you pay on the loan may be tax-deductible if you are using the funds to improve the property on which the loan is taken.1 It’s this combination of low rates and potentially tax-deductible interest that make a HELOC extremely attractive to borrowers.