If you own your own home you will most likely have seen the value of your property rise since you bought it. That means you will have equity, which is the difference in value between what you paid and what your home is now worth.

The good news is that if you are in this position you could take advantage of a line of credit that gives you access to some of that credit you have in your home.

This form of borrowing is known as a Home Equity Line of Credit (HELOC).

If you search HELOC rates Utah, for instance, you will instantly notice that the typical interest rates charged for this type of loan are very competitive compared to other forms of borrowing.

Here is an overview of how a HELOC works and how to qualify

How it works

The basics of how a HELOC works is that it is a form of borrowing where you use some of the equity available in your home as collateral for a line of credit that you can use for major purchases or consolidating your borrowing using a lower cost of borrowing.

Your lender will offer you a line of credit. Think of it as something similar to a bank overdraft, where the amount you owe fluctuates as you pay back money to reduce what you owe.

How can you qualify for a HELOC?

First of all, you need to have sufficient equity available in your home.

Typical lending criteria for a HELOC would be that you can borrow up to about 85% of the value of your home, less what is outstanding on your mortgage debt.

If your home was worth $300,000, for example, and you owed $200,000 on your mortgage, in this scenario you could potentially borrow an extra $55,000, which is 85% of the current value of your home.

What is the interest rate?

Compared to other forms of borrowing, a HELOC compares favorably when it comes to the interest rate you pay for the loan. One of the main reasons for this is that the loan is secured against your home. This reduces the risk to the lender of a default, which is why they can charge a lower rate of interest.

Bear in mind that if you default on the agreement it could put your home at risk of foreclosure as a method of collecting the debt.

You should always think carefully about taking out any loan. Applying for a HELOC is no different. If you have the means to repay it and borrow sensibly, it can work out to be a very cost-effective way of getting the finance you need.

The interest rate you pay can be fixed or variable. A fixed rate option gives you greater certainty. Variable rates can change from month to month based on the latest bank borrowing rates.

Provided you have a good credit history and are up to date with your mortgage payments, you should be able to qualify for a HELOC if you have sufficient equity available.