![]() ![]() Keep in mind that lenders typically only allow borrowers to access 80 - 85% of that total.Īlso, HELOCs typically feature a variable interest rate, meaning your rate will increase or decrease each time it's rebalanced. To calculate that figure, take the current value of your home and subtract how much you owe on your mortgage. This maximum amount is determined by a couple of variables, including your level of home equity. The bottom line is that a HELOC allows you to borrow against your home equity up to a certain limit. Comparably, an unsecured debt, such as a personal loan, may come with a higher interest rate because the financial institution does not have a means to recover its investment. If a secured debt is defaulted on, the financial institution is within its right to repossess that collateral, i.e., the residence attached to a home equity line of credit. There is a trade-off to this arrangement, however. In the case of a HELOC, your home secures the line of credit, which enables financial institutions to offer more favorable terms, like lower interest rates. This refers to a debt that is secured by some other form of collateral.
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