questions on how HELOC works, if you have one please chime in

[madnutz]

Hello,

I am currently "in the garden" as some would say as I have just apped for a bunch of prime cards and got accepted to most and closed out cards that either had very low limits and or came with an annual fee,   I am expoloring any options I might have in regards to making sure my credit gets the boost it needs and was wondering about a HELOC(Home equifty line of credit), I read the wiki on how the money is borrowed and that the collateral is your home   Here are my questions;

1. How does a HELOC show on credit report? Installment? revolvin? would it look like a credit card? 

2. Does it show the credit limit? and would this help me get higher credit card limits in the future? Right now my highest limit card sits at 2k, I was wondering if I get a HELOC and say my credit line is 10k, I have that for a year, next time I apply for a card I would hope to get a better chance at a high credit limit (well higher than my 2k card now)

3. Any other things I should look out for? 

NOTE: I don't plan to actively use the HELOC for anything, maybe if somehow some kind of emergency came up where I had to max out all my cards or something but this is simply to be used to gain an advantage with my credit

[09Lexie]

Unless you need a HELOC(or any kind of credit) it's not best to get encumber your home for a credit boost.

However, HELOCs are usually installment loans since they are secured. Because they report as an installment loan, it would be similar to having a car loan; It would report as high balance /not a credit limit. HELOCs are usually 120-180 month term accessed via checks.
There are closing costs associated with the loan and the APR is usually adjustable.

Again, I would suggest other avenues in obtaining higher CL's.

[OhioCPA]

My understanding is that a HELOC of less than $50K will report as a revolving credit line and those of $50K or greater as an installment loan. Mine is less than $50K and does report as a revolving trade line.

As far as closing costs go, we opened ours at the time we closed on our mortgage so there were no closing costs for the HELOC. I do feel that the higher limit on the HELOC has helped me gain higher limit CC's. The downside will be when we tap the HELOC for some home improvements next year, the HELOC will be counted in my revolving utilization.

[09Lexie]

It's been about 10 years since I had a HELOC and it was an installment loan for $35k. Accessed via checks and renewed in 15 years and received a few years after I closed on my first mtg. Again, it was 10 years ago and my file was thick, so I can't say that it helped me because it just looked like a second mtg.

Discuss with your LO how they will report the LOC and decide if a second mtg makes you look more appealing to creditors. Keep in mind, the LOC may alter your dti as well

[Roarmeister]

With my bank, the max value of the HELOC is calculated as 80% of the equity I have into the home.  So if the house is $300k and I owe $150k, the net value is $150k.  That X 80% is $120k.  Of that, my bank says that 65% of the HELOC is revolving and the other 35% is an installment loan so $78k and $42k respectively.  A HELOC is essentially a second mortgage as it uses my equity in the home at its collateral. The formulas will vary with the regulations and banks in your jurisdiction.  In Canada, the max. value was changed from 90% to 80% a couple of years ago to protect the consumer from their own stupidity.

"Traditional mortgages in the United States are usually non recourse loans, while mortgages in countries such as Canada are generally recourse loans. "Nonrecourse debt or a nonrecourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable." A HELOC may be a recourse loan for which the borrower is personally liable. This distinction becomes important in foreclosure since the borrower may remain personally liable for a recourse debt on a foreclosed property." - Wikipedia.  We in Canada simply cannot walk away from a mortgage or HELOC like you can in the US. 

It can make sense if you use it to renovate or add value to the home instead of simply using it to pay for the kid's college or to buy "stuff" or as a consolidation loan to pay off your other credit.  High HELOC amounts can be dangerous in a market downturn, especially if the value of your home crashes and you are "underwater" and owe more than the value of the asset.