What is a home equity line of credit (HELOC)?

A home equity line of credit (HELOC) gives you access to funds based on the amount of home you own, or equity. The funds you have access to are secured by your home.

A home equity line of credit is a great option for homeowners looking to fund expenses they are expecting or anything that comes up. HELOCs tend to come with lower interest rates than some other types of loans. And if you decide to use your HELOC funds for home improvements, the interest could be tax-deductible*.

To access your HELOC funds for whatever you may need, start your application today!

HELOCs typically work in two periods: a draw period and a repayment period.

During your draw period, you will have access to funds based on the amount of home equity you have and your property’s worth. During this time, you can make as many draws as needed without going over your limit. While you are making draws, you will only have to pay the interest on the money you use.

When your draw period ends, you will enter your repayment period. After your repayment period starts, you will not be able to make additional draws on your account and will have to begin repaying the amount you used, as well as interest on that amount.

Getting a HELOC with Rate offers you a lump-sum amount based on the home equity you have. As you pay that amount back, you can make additional draws.

While qualifications for a HELOC can slightly vary depending on lender, these are a few standard qualifications a borrower needs to meet.

• Credit score minimum of 640.
• Debt-to-income ratio of no more than 50%.
• A maximum combined loan-to-value ratio of 85%.

HELOC funds can be used to fund any expenses as you need. Let’s take a look at a few popular ways borrowers use their HELOC:

• Debt consolidation: If you have multiple high interest debts, your home equity line of credit can be used to consolidate them into one payment.
• Education: Tuition and housing fees for education can be costly. A HELOC can be used to help you cover some of the costs.
• Unexpected bills: Not all costs can be expected. Some borrowers choose to use a HELOC to fund any sudden car repairs, medical bills or surprise expenses that can arise.
• Home improvements: Many borrowers choose to use their HELOC to fund any home improvements, upgrades or repairs. This is a great use for a HELOC as certain renovations can increase your property values and your home equity, making this use of a HELOC a great return on investment.

To assist you in your HELOC journey, we have compiled some common home equity line of credit questions potential borrowers have had. These are a few of the questions with answers to help you better understand how a HELOC works.

The exact rates and fees you will get depends on when you get your HELOC as well as on your financial situation.

At the start of your home equity line of credit, you will have a fee for closing cost that can be anywhere from 2% to 5% of your total loan amount. You also may have to pay for a home appraisal to determine your property’s value and figure out the amount of home equity you have.

Your interest rate will end up being a percentage of the amount you borrow. To help see the amount you will pay each month with interest, you can use a HELOC calculator to get an idea before applying.

If your HELOC comes with a variable rate, you will notice that the rates you pay each month can change. Refinance your HELOC to a fixed rate if you are trying to keep your interest payments uniform from month to month.

A HELOC does work similar to a credit card, with which you can access funds up to a limit as you need them, but a home equity line of credit does come with some additional perks.

Some benefits of using a HELOC over a credit card is that HELOCs tend to offer lower interest rates and larger limits than credit cards do. This is because HELOCs feel safer as HELOCs are secured by your home through a mortgage loan, whereas most credit cards are unsecured.

The amount you can borrow with a HELOC depends on your home’s value and the equity you have in it.

HELOCs allow you to access the equity you have in your home. To determine the amount of home equity you have, you can take your current home’s value and subtract your remaining loan balance. The number you are left with is the equity you own in your home.

Lenders typically let you borrow 80% to 85% of your loan, while some lenders will let you access up to 90% of your home equity.

You can start the HELOC process by beginning your application online.

An online application will tell you the exact terms of your loan as well as the amount you can borrow. For any other questions you may have or explanations you may need during your application, you will be assigned a professional Loan Officer who can help and guide you through your HELOC and the process.

Begin your application today and get started on the home equity line of credit process!

_{*Rate does not provide tax advice. The consumer should always consult a tax advisor for information regarding the deductibility of interest and other charges in their particular situation.}

_{Applicant subject to credit and underwriting approval. Restrictions apply.}

_{Information provided is for educational purposes only. It should not be construed as financial or legal advice or instruction. Rate  does not guarantee or assume liability for the accuracy, completeness or timelines of the information. You should conduct additional research before making any mortgage related decisions.}