HELOC Mortgage Loans in the US. Apply Online

A Home Equity Line of Credit (HELOC) is a form of revolving credit that allows homeowners to borrow against the equity they have built up in their homes. Unlike traditional loans, where you receive a lump sum of money upfront, a HELOC provides you with a credit line that you can draw from as needed, similar to a credit card. The amount you can borrow is typically determined by the equity you have in your home, which is calculated by subtracting the amount you owe on your mortgage from the current market value of your property.

HELOCs consist of two main periods: the draw period and the repayment period. During the draw period, which typically lasts around 10 years, you can access funds from your credit line and are only required to pay interest on the amount you borrow. Once the draw period ends, the repayment period begins, during which you can no longer borrow funds and must start repaying both the principal and interest on the outstanding balance. The interest rates on HELOCs are usually variable, meaning they can fluctuate over time based on market conditions. However, some lenders may offer options to convert to a fixed interest rate for a certain period.

Features

Revolving Credit. HELOCs provide homeowners with a revolving line of credit, allowing them to borrow funds as needed and repay them over time.
Draw Period. Typically, HELOCs have a draw period during which borrowers can access funds and make interest-only payments.
Repayment Period. After the draw period ends, borrowers enter the repayment period, during which they must repay both the principal and interest on the outstanding balance.
Variable Interest Rates. HELOCs often have variable interest rates, meaning the rates can fluctuate over time based on market conditions.
Secured by Home Equity. HELOCs are secured by the equity in the borrower's home, making them a form of secured debt.
Potential Tax Deductions. Depending on the use of funds, homeowners may be eligible to deduct the interest paid on their HELOCs from their taxes, subject to certain restrictions and limitations.

Pros and Cons

Pros

Flexibility. HELOCs offer flexibility in borrowing funds for various purposes, such as home renovations, debt consolidation, or emergencies.

Lower Interest Rates. Compared to some other forms of borrowing, HELOCs may offer lower interest rates, especially during the draw period.

Potential Tax Benefits. Homeowners may be eligible to deduct the interest paid on their HELOCs from their taxes, potentially reducing their tax liability.

Cons

Variable Interest Rates. HELOCs often have variable interest rates, which can result in fluctuations in monthly payments, making budgeting challenging.

Risk of Foreclosure. Since HELOCs are secured by the borrower's home equity, defaulting on payments could lead to foreclosure, putting the borrower's home at risk.

Payment Shock. When the draw period ends and borrowers enter the repayment period, monthly payments may increase significantly, causing payment shock for some borrowers.

How to Get a HELOC

Apply for a loan

Research Lenders. Compare HELOC offerings from various lenders, including banks, credit unions, and online lenders. Consider factors such as interest rates, fees, and repayment terms.
Gather Documentation. Prepare the necessary documents, including proof of income, employment history, property value, and mortgage details, to support your HELOC application.
Apply for the HELOC. Submit your application to the chosen lender. Be prepared to undergo a credit check and provide documentation to verify your financial information.
Complete the Underwriting Process. The lender will review your application, assess your creditworthiness, and determine the amount of your HELOC based on factors such as your income, credit score, and home equity.
Close the HELOC. Once approved, review the terms and conditions of the HELOC agreement and sign the necessary paperwork to finalize the loan.
Access Your Funds. Once the HELOC is established, you can access funds as needed, either through a checkbook, online transfer, or debit card, depending on the lender's policies.

Requirements

Minimum Credit Score. Borrowers are required to have a minimum credit score of 700 to qualify for the HELOC, ensuring a strong credit profile and demonstrating creditworthiness.
Loan-to-Value Ratio. The maximum loan-to-value (LTV) ratio allowed is 80%, meaning the total combined mortgage debt cannot exceed 80% of the appraised value of the property.
Stable Income. Borrowers must provide proof of stable income through recent pay stubs, W-2 forms, or tax returns, demonstrating the ability to repay the loan.
Debt-to-Income Ratio. The debt-to-income (DTI) ratio should not exceed 43%, calculated by dividing the total monthly debt payments by gross monthly income.
Property Appraisal. A professional property appraisal is required to determine the current market value of the property and establish the maximum credit limit based on the LTV ratio.
Home Equity. Borrowers must have sufficient equity in their primary residence, with a minimum of 20% equity remaining after accounting for the HELOC credit limit and existing mortgage debt.
Insurance Requirements. Borrowers must maintain adequate homeowners insurance coverage on the property securing the HELOC throughout the loan term, protecting against potential losses.
Documentation. Borrowers need to submit various documents, including proof of identity, residence, employment, and assets, to verify their financial stability and eligibility for the HELOC.

Conditions

Interest Rates. The HELOC offers a competitive variable interest rate based on the prime rate, currently set at 4.25%, with a margin of 2%. This results in an initial interest rate of 6.25%. The interest rate is subject to change monthly based on fluctuations in the prime rate.
Draw Period. Borrowers have a 10-year draw period during which they can access funds as needed, up to a preapproved credit limit of $100,000.
Repayment Period. After the draw period, borrowers enter a 20-year repayment period. During this phase, monthly payments include both principal and interest, calculated based on the outstanding balance at the end of the draw period.
Credit Limits. The HELOC offers a flexible credit limit ranging from $10,000 to $250,000, depending on the borrower's creditworthiness, income, and the loan-to-value ratio of the property.
Access to Funds. Borrowers can access funds through various channels, including checks, online transfers, and a designated HELOC debit card, providing convenient access to funds when needed.
Interest-only Payments. During the draw period, borrowers are required to make interest-only payments, providing flexibility and reducing immediate financial burden.
No Prepayment Penalty. Borrowers have the option to make additional payments or pay off the entire balance early without incurring any prepayment penalties, allowing for faster debt reduction.
Annual Fee. The HELOC may include an annual maintenance fee of $50, which is waived for the first year. Subsequent annual fees are subject to review based on account activity and usage.

Ways to Get the Money

Checkbook. Lenders may provide borrowers with a checkbook linked to their HELOC account, allowing them to write checks to access funds as needed. This method offers flexibility and convenience in managing expenses.
Online Transfers. Borrowers can transfer funds electronically from their HELOC account to their linked checking or savings account through the lender's online banking platform. This option provides quick access to funds for various purposes, including bill payments and purchases.
HELOC Debit Card. Some lenders issue a dedicated debit card linked to the HELOC account, enabling borrowers to make purchases directly using the available credit line. This method offers convenience similar to a traditional credit card, with funds drawn from the HELOC balance.
Wire Transfer. In cases where immediate access to funds is required, lenders may offer wire transfer services, allowing borrowers to transfer funds from their HELOC account to third-party accounts or financial institutions. This method is suitable for large transactions or time-sensitive payments.

Best Places to Get a HELOC

Bethpage Federal Credit Union offers a solid range of mortgages, catering to borrowers who value the membership-based, not-for-profit model of a credit union. With a fixed-rate option and no closing costs, it provides flexibility and affordability. However, to access the best rates, borrowers may need to meet a minimum draw requirement, which could be a drawback for some.

Figure specializes in HELOCs, providing borrowers with a swift closing process and the entire loan balance upfront. With a fixed interest rate for the initial balance and any additional draws, borrowers can enjoy stability in their payments. However, the short draw period and the requirement of a minimum initial draw might limit flexibility for some borrowers.

TD Bank caters to borrowers on the East Coast, offering them the opportunity to tap into their home equity with potential rate discounts. While the bank provides transparency by publishing sample HELOC rates online and offering a fixed-rate payment option, there are drawbacks such as an annual fee for lines of credit above a certain threshold and limited availability outside the East Coast states.

Guaranteed Rate appeals to borrowers seeking predictability with their payments through its fixed-rate option for HELOCs. Offering a borrowing limit over 80% of the Combined Loan-to-Value (CLTV), it provides flexibility for borrowers with substantial equity. However, the lack of information about annual fees and the requirement to draw the full amount at closing could be potential concerns for some borrowers.

Things to Pay Attention To

Interest Rates. Compare interest rates from different lenders and understand whether they are fixed or variable. Consider how rate changes may impact your payments during the draw and repayment periods.
Fees and Closing Costs. Be aware of any fees associated with the HELOC, including application fees, origination fees, closing costs, and annual maintenance fees. Factor these costs into your overall borrowing expenses.
Draw and Repayment Periods. Understand the duration of the draw period (when you can access funds) and the repayment period (when you must repay the borrowed amount). Plan your finances accordingly to meet payment obligations.
Credit Score Requirements. Check your credit score before applying for a HELOC. Lenders typically have minimum credit score requirements, and a higher score may qualify you for better terms and interest rates.
Loan-to-Value Ratio. Calculate your loan-to-value (LTV) ratio, which compares the amount of the HELOC to the appraised value of your home. Lenders may have LTV ratio limits, so ensure you meet their requirements.

How to Repay a HELOC?

Understand the Terms. Familiarize yourself with the terms of your HELOC, including the interest rate, draw period, repayment period, and monthly payment amount.
Make Interest-Only Payments. During the draw period, you are typically required to make interest-only payments on the amount borrowed. Ensure timely payment to avoid default.
Make Timely Payments. Make your HELOC payments on time each month to avoid late fees and penalties. Set up automatic payments or reminders to ensure timely payment.
Consider Paying Extra. If possible, consider paying more than the minimum monthly payment to reduce the principal balance and interest costs over time.

Reasons for Getting Rejected for a HELOC

Low Credit Score. Lenders may reject your HELOC application if you have a low credit score, indicating a higher risk of default.
Insufficient Equity. If your home's equity is too low or the loan-to-value ratio exceeds the lender's limits, you may be denied a HELOC.
High Debt-to-Income Ratio. Lenders assess your debt-to-income ratio to determine your ability to repay the HELOC. If your existing debt obligations are too high relative to your income, you may be denied.
Inconsistent Income. Lenders prefer borrowers with stable and sufficient income to support loan repayments. Inconsistent income or employment history may result in rejection.
Recent Bankruptcy or Foreclosure. A recent bankruptcy or foreclosure on your credit history may lead to rejection as it indicates financial instability and increased risk to the lender.

Alternatives

Home Equity Loan. Similar to a HELOC, a home equity loan allows homeowners to borrow against the equity in their property. However, instead of a revolving line of credit, a home equity loan provides a lump-sum amount upfront, which is repaid over time with fixed monthly payments and a fixed interest rate.
Cash-Out Refinance. With a cash-out refinance, homeowners can refinance their existing mortgage for a higher amount than what they currently owe and receive the difference in cash. This option allows borrowers to access their home equity while potentially securing a lower interest rate on the new mortgage.
Personal Loans. A personal loan is an unsecured loan that can be used for various purposes, including home renovations or purchases. Personal loans typically have fixed interest rates and repayment terms, providing predictability for borrowers. While not secured by the property, personal loans may have higher interest rates compared to mortgages.
401(k) Loan. Borrowers who have a 401(k) retirement account may have the option to take out a loan against their account balance. While this can provide quick access to funds without impacting credit scores, it's important to consider the potential impact on retirement savings and the risk of penalties for early withdrawal if the loan isn't repaid according to the terms.

Editorial Opinion

HELOCs can be a valuable financial tool for homeowners looking to access their home equity for various purposes, from home improvements to debt consolidation. The flexibility of a revolving line of credit and the ability to borrow funds as needed can offer convenience and liquidity. However, it's essential for borrowers to carefully consider the potential risks, such as fluctuating interest rates and the possibility of payment shock during the repayment period. Additionally, responsible financial management is crucial to avoid overleveraging one's home equity and risking foreclosure.

Important

Keeping your Debt-to-Income (DTI) ratio below 30-40% of your monthly income is crucial. This will help you avoid potential financial problems in the future. Additionally, always assess the necessity and feasibility of taking a loan, ensuring you can comfortably manage its repayment.

How to Choose a Mortage Lender

Check Associations. Look for lenders who are members of reputable organizations, such as the Mortgage Bankers Association (MBA). Membership in these organizations can indicate a higher level of reliability and professionalism.
Review Terms and Conditions. Carefully examine all the terms and conditions of the mortgage contract. Pay special attention to details like the loan term, fixed vs. variable interest rates, and any prepayment penalties.
Interest Rates and Costs. Scrutinize the interest rates and ensure that your contract includes a detailed breakdown of the total cost of the mortgage, including closing costs, origination fees, and any other charges.
Right of Rescission. Remember you can utilize your right of rescission, which typically allows you to cancel the mortgage within three days after signing the agreement. Additionally, use the "cooling-off" period to thoroughly review the contract and make an informed decision before finalizing the mortgage agreement.
Compare Offers. Shop around and compare offers from multiple lenders to find the best rates and terms that suit your financial situation.