Home Equity Line of Credit (HELOC)

A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by the equity in your home. Unlike a traditional loan that provides a lump sum, a HELOC works more like a credit card—you’re approved for a maximum credit limit and can borrow as much or as little as you need, when you need it.

The amount you can borrow typically depends on:

• Your home’s appraised value

• The balance on your current mortgage

• Your creditworthiness and income

Lenders often allow you to borrow up to 85% of your home’s appraised value minus any outstanding mortgage balance.

A HELOC has two key phases:

1. Draw Period (typically 5 to 10 years):

• You can borrow from the line of credit as needed.

• Monthly payments are usually interest-only.

• You can repay and re-borrow repeatedly during this time.

2. Repayment Period (typically 10 to 20 years):

• The line of credit is closed.

• You repay both principal and interest.

• Monthly payments can increase significantly.

• Variable Interest Rates: Most HELOCs have rates tied to the prime rate, which means your payments can fluctuate.

• Flexible Borrowing: Withdraw funds only when needed, reducing unnecessary interest.

• Interest-Only Option: Lower payments during the draw period, though this doesn’t reduce the principal.