Costs & Credit Limits
The two most important figures to know about a home equity line of credit are the costs and your credit limit. We’ll explain both in more detail here.
Your Credit Limit
When you apply for a home equity line of credit, your lender will approve you for a maximum amount, or a credit limit. This figure represents the maximum amount of money you can borrow at any given time. Most lenders determine this limit by taking a percentage of the appraised value of your home and then subtracting any outstanding debts against it. You can find an example of how your home equity line of credit limit is calculated below:
- Appraised value of home: $200,000
- Percentage (determined by lender) X75%
- Percentage of appraised value = $150,000
- Minus outstanding mortgage balance: -$100,000
- Possible credit limit: $50,000
Home Equity Line of Credit Costs
Establishing and maintaining a home equity line of credit involves certain expenses outside of the interest you will pay. Here are some common expenses associated with a home equity line of credit:
- Application fee (possibly non-refundable)
- Closing costs
- Possible transaction fees every time you access your funds
- Up-front costs or points
- Property appraisal costs to determine the value of your home
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