What it is
A HELOC is a revolving line of credit secured by your home. Unlike a cash-out refinance, it does not replace your existing mortgage or lock you into a single lump sum. You draw what you need, when you need it.
During the draw period, commonly ten years, the required payment is generally interest only on the balance drawn. When the draw period ends, the line enters a repayment period, commonly twenty years, and the balance amortizes. The payment increases at that point, sometimes sharply if the balance is large.
The rate is variable and tied to an index, so payments move with the market. And because the line is secured by the home, the same lien that keeps the rate low is what makes non-payment serious. Those two facts are the trade for the flexibility.
Who it fits
- Homeowners with meaningful equity
- Borrowers who want access to funds over time rather than a lump sum
- Renovators funding projects in stages
- Investors who want equity available for the next purchase
How it runs
- 1Equity CheckWe confirm available equity, commonly up to 85% of home value less the first mortgage balance.
- 2ApplyA standard review of income, credit, and the property.
- 3AppraiseMany HELOCs use a desktop or automated valuation rather than a full appraisal.
- 4Open The LineThe line opens at closing and can be drawn by check or transfer during the draw period.
Questions
Is the rate variable or fixed?
HELOC rates are variable, generally tied to the prime rate plus a margin, so the payment moves when the index moves. Some programs allow you to convert a portion of the balance to a fixed rate.
Do I have to use the full line?
No. Interest accrues only on the balance you have drawn, though some programs charge an annual or inactivity fee.
How long is the draw period?
Ten years of draw followed by twenty years of repayment is the most common structure. Terms vary by lender.
HELOC or cash-out refinance?
A HELOC is a second lien with a variable rate and flexible draws, and it leaves your first mortgage alone. A cash-out refinance replaces the first mortgage with a fixed-rate loan and a lump sum. Which fits depends on the rate on your existing first mortgage and whether you need the money all at once.
Other programmes
Fixed Rate Mortgage
A predictable rate and payment for the life of the loan.
FHA Home Loan
Government-insured loans with 3.5% down and flexible credit guidelines.
VA Home Loan
$0 down, no monthly mortgage insurance, reusable entitlement.
Rehab Loan
Finance the purchase and renovation of a home in a single mortgage.
USDA Loan
0% down loans for eligible rural and suburban homes.
Jumbo Home Loan
Financing for homes priced above the conforming loan limit.