HELOC: Home Equity Line of Credit
A home equity line of credit, known as a HELOC, lets you borrow against the equity in your home and use funds for needs like medical expenses, home improvements, tuition costs, debt consolidation and more.
What is a HELOC?
A home equity line of credit, known as a HELOC, is a revolving line of credit borrowed against the equity of your home. Like a credit card, a HELOC is flexible, allowing you to draw money as you need it instead of taking out a single lump-sum loan.
How does a HELOC loan work?
Since a HELOC loan is a mortgage line of credit, you can borrow funds up to a set credit limit and interest is charged on the amount borrowed. The revolving credit line can be paid down and reused during your draw term. Draw periods may last more than 10 years, depending on the program. HELOCs typically have variable interest rates that can change over time, which means your borrowing costs may fluctuate as the prime rate changes.
Understanding the draw term
You’ll only be required to pay interest throughout the draw term. After the draw term is complete, you may either pay the balance in full or pay according to a set schedule. Once the draw period ends, you may experience “payment shock” as you begin to repay both principal and interest. You may also be able to refinance the equity line for an additional 5 to 10 years.
What are the benefits of a HELOC?
A HELOC allows homeowners to borrow against the equity they’ve built in their property through a flexible line of credit. Unlike a traditional loan that provides funds in a single lump sum, a HELOC lets you draw money as needed and pay interest only on the amount you use.
HELOCs can offer convenient access to funds through multiple methods, such as checks, transfers, branch visits, ATMs or Visa cards. Because of this flexibility, many borrowers use HELOC loans for home improvements, debt consolidation, including consolidating higher-rate debt, or other major expenses.
Some key benefits of a HELOC include:
- Lower interest rates than many credit cards or personal loans
- Introductory low rates during the first 6 to 12 months, depending on the program
- Interest charged only on the amount you borrow
- Interest-only payments during the draw period
- Ability to fund home improvement or renovation projects that may increase your property’s value
- Flexible access to funds as expenses arise
What you do with funds from a HELOC is up to you. Home improvements, large purchases and tuition costs are a few popular ways you can put your equity to work for you.
- Set up access to emergency funds
- Buy a new car, truck, boat or RV
- Pay for college tuition
- Renovate or remodel your home
- Consolidate higher-interest debt
Using a HELOC for debt consolidation can be a practical option if the interest rates are lower than those of your existing debts.
If you do not have sufficient home equity, a personal loan may be an alternative for large expenses such as weddings, vacations or education.
Additional HELOC loan benefits
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1
Customization
HELOC loans often have a variable interest rate, which means the rate can fluctuate based on changes to the federal prime interest rate. Some programs may allow you to convert a portion of your balance to a fixed interest rate. Credit limits can also vary and depend on your home equity.
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2
Convenience
Closing on a HELOC loan may take place in your own home, depending on the program and process.
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3
Accessibility
Several options may be available for accessing cash, including personal withdrawals, check writing and card use.
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Flexibility
You choose how much to borrow and use, as well as how much to repay and when, as long as it is equal to or more than the minimum payment.
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5
Tax deductions
Depending on your situation, interest paid on a HELOC loan may be tax deductible under federal and state income tax laws. Not all states may allow this deduction. Consult a tax advisor to make sure you’re eligible.
Eligibility requirements to qualify for a HELOC
Equity in your home is a key component in determining your available credit. When considering a HELOC, remember that the loan is secured by your home. Failure to pay could damage your credit standing and result in the loss of your home through foreclosure. Here are some common HELOC qualifying criteria:
- Home equity
- Credit score and credit history
- Debt-to-income ratio (DTI)
- Income
- Proof of steady employment
How to get a HELOC mortgage loan
If you’re ready to put your home’s equity to work for you, we’re here to help. Here are steps to expect:
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Find out how much you can borrow based on your home equity
Your home’s equity is calculated by subtracting your current mortgage balance from the current value of your property. Your loan-to-value ratio and creditworthiness may affect how much you can borrow.
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Complete the pre-approval process with your loan officer
During pre-approval, your credit score, income, debt-to-income ratio and employment history will be reviewed. This step helps determine your eligibility and potential credit limit for your HELOC.
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Complete the loan application
You can usually apply online, by phone or in person at a branch. The application process may require documentation such as pay stubs, tax returns and W-2s.
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Undergo property appraisal and verification
Your lender may order an appraisal to confirm the current value of your home. This step helps finalize your credit limit and loan terms.
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Close on your HELOC loan
If approved, you’ll sign the loan documents. Closing may be completed remotely or at a branch, depending on the program and process. Review any potential fees, such as annual fees or early closure fees, before closing.
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Access your funds conveniently
After closing, you can withdraw money by transferring funds to your checking account, using convenience checks or accessing your HELOC with a debit card linked to the line of credit. This flexibility allows you to manage your funds easily.
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Manage your repayment period
During the draw period, you typically make interest-only payments on the outstanding balance. After this, the repayment period begins, where you pay back both principal and interest according to a set schedule.
These steps can help you understand what to expect as you explore a HELOC. If you have questions, our loan officers are ready to guide you through the process.
How does a HELOC compare to a cash-out refinance?
When deciding how to access your home’s equity, many homeowners compare a HELOC loan with a cash-out refinance. Both options allow you to borrow against your home’s value, but they differ in how funds are distributed and repaid. A HELOC can also be used to fund a down payment on a second property or cover other major expenses, making it a flexible line of credit for significant financial needs. See the difference below.
| Feature | HELOC | Cash-out refinance |
|---|---|---|
| What it is | A revolving line of credit secured by your home equity | A refinance that replaces your existing mortgage with a new, larger loan |
| How funds are received | Borrow money as needed during the draw period | Receive the equity as a lump-sum payment at closing |
| Interest rate type | Usually variable, though some programs offer fixed-rate options | Typically fixed or adjustable depending on the refinance loan |
| Payment structure | Interest-only payments may be available during the draw period | Regular monthly payments on the full loan amount |
| Best for | Ongoing expenses like renovations, repairs or projects completed over time | Large expenses or debt consolidation when you need a lump-sum amount |
| Impact on existing mortgage | Your current mortgage remains in place | Your current mortgage is replaced with a new refinance loan |
Why choose CrossCountry Mortgage for a HELOC?
If you’re looking for a flexible way to access your home’s equity, a home equity line of credit can provide the funding you need for renovations, major expenses or financial planning. As the #1 Retail Mortgage Lender in the nation, CrossCountry Mortgage offers competitive HELOC options and low introductory rate opportunities designed to help homeowners make the most of their equity. Our experienced team can guide you through the process and help you determine whether a home equity line of credit is the right solution for your goals.
HELOC FAQs
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When comparing a home equity line of credit (HELOC), look for features such as available interest rates, flexible credit limits, draw and repayment terms and available access methods like online transfers, checks or cards. It’s also helpful to review closing costs, potential introductory rates and whether the program offers fixed-rate options for part of the balance.
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The timeline for a HELOC loan can vary depending on the lender, your financial documentation and the property appraisal process. In many cases, the process may take a few weeks from application to closing, though timelines can differ based on individual circumstances.
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Some lenders may offer a HELOC loan for certain manufactured or mobile homes, but eligibility often depends on factors such as the property type, foundation and ownership status of the land. Speaking with a loan officer can help determine whether your property qualifies for a home equity line of credit.
