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A home equity line of credit, or HELOC, is a type of loan that allows you to borrow against the equity in your home as you need it over a certain period of time. It’s a revolving loan secured by your home, so it functions more like a credit card than a lump-sum home equity loan.

You may consider using a HELOC for a number of big expenses. Some common examples include making home improvements, paying for college costs and consolidating debt.

You may even qualify for a tax deduction if you use the HELOC to “buy, build or substantially improve your home,” according to the IRS.

With a HELOC, you’re given a line of credit that’s available for a set time frame. During the draw period, which usually lasts around 5 to 10 years, you can use the money as needed and make interest-only payments. After the draw period expires, you must begin repaying whatever you borrowed over the next 10 to 20 years.

Here’s how to calculate how much you can take out with a HELOC.

Your home's equity is the difference between the appraised value of your home and your current mortgage balance. To get the best terms, most lenders will restrict your borrowing to 80% of the value of your home, minus the amount you still owe.

For example, let’s say your home’s appraised value is $300,000. 80% of that is $240,000. Let’s also say you owe $175,000 on your mortgage. Subtract the $175,000 balance from the $240,000 home value and that leaves you with $65,000 as the maximum HELOC you could receive.

Here are some things to consider when evaluating a HELOC.

First, you may start with the same lender that holds your current mortgage. Don’t stop there, though. Be sure to compare loan offers from at least three different lenders.

The first thing you’ll want to compare is the interest rate. HELOCs have a variable interest rate, meaning it can go up or down over time. HELOC interest rates typically follow an index, such as the prime rate.

Second, you’ll want to compare fees. Some lenders charge upfront fees, closing costs, an annual fee and potentially others. Not all lenders charge the same set of fees, and each lender may charge different amounts. Some will even pay the fees for you if you borrow a certain amount at closing, called a draw, or keep the line of credit open for a certain number of years. So it’s important to shop around.

Why you should trust Bankrate as you look for a HELOC (flex expertise and transparency of rating lenders)

Bankrate makes it easy to do just that. We’ve done the heavy lifting with our HELOC comparison tool that allows you to compare multiple lenders in one spot.

Additionally, Bankrate’s editorial experts have reviewed multiple HELOC lenders so you can find detailed information about the institutions you’re considering. These editorial ratings are not influenced by partners or any outside party. The editorial team writes on behalf of you, so you can trust that you’re getting credible and dependable information.

If a HELOC sounds like the right financial product for you, visit [ Ссылка ] and apply toda

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