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The Curious Bag
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A home equity line of credit allows you to borrow money as you need it---up to a limit---against the value of your home. These loans allow a significantly higher credit limit than credit cards because they are secured by your home.
Who Determines the Rate?
The financial institution you borrow from sets the interest rate for a home equity line of credit based on a number of financial metrics.
Credit Score
Your credit score represents how likely you are to repay your loan as agreed based on your financial history. The higher your score, the lower your interest rate will be.
Income
Lenders examine your income to determine how much of your income goes to paying debt obligations, such as your mortgage, student loans and your home equity line of credit.
LTV
LTV, or loan-to-value ratio, compares the amount you have borrowed, including mortgage debt, to the value of your home. For example, if your home was worth $200,000, you owed $100,000 on your mortgage and wanted a $50,000 home equity line of credit, your LTV would be 75 percent. The higher your LTV the higher your interest rate will be.
Considerations
When applying for a home equity line of credit, you many want to have your home reappraised if the value has increased, because a higher appraisal will decrease your LTV---which will decrease your interest rate.
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