Borrow against your equity, keep the mortgage you have.
A home equity line of credit sits behind your first mortgage and lets you draw what you need, when you need it, up to a limit set by your equity. Your existing mortgage keeps its rate and payment; the line has its own rate and payment, usually variable. Renovations, tuition, a reserve for the unexpected: a line is the flexible way to use equity.
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The life of a typical line
Years 1 to 10
Years 11 to 30
Draw period
Borrow, repay and borrow again up to your limit. Many lenders ask only for interest on what you have drawn.
Repayment period
The line closes to new draws and the balance is repaid with principal and interest over the remaining term.
Draw and repayment periods, rate type, minimum payments and limits vary by lender. The figures above are what is typical among the lenders we work with, not a commitment to lend.
What a home equity line of credit actually is.
A HELOC is a revolving line of credit secured by your home, set up as a second lien behind your existing mortgage. The lender approves a limit based on how much equity you have, and during the draw period you can take money out, pay it back and take it out again, paying interest only on what you have drawn. When the draw period ends the line closes to new borrowing and the balance is repaid over the remaining term.
The rate is usually variable, tied to the prime rate plus a margin set by your credit and equity, so your payment moves when the prime rate moves. Some lenders let you lock a drawn balance at a fixed rate. Because the line sits behind your first mortgage, that mortgage, its rate and its payment are untouched, which is the main reason homeowners who locked a low rate years ago choose a line over a cash-out refinance.
A home equity loan is the fixed-sum cousin: one lump sum at a fixed rate with a level payment from the first month. Which of the three fits depends on what the money is for, how your current mortgage compares to today’s rates, and whether you want flexibility or certainty. Your licensed pro prices the options side by side.
Three ways to use your equity.
All three are secured by your home. The difference is how you receive the money, how the rate works and what happens to your current mortgage.
Flexible
Home equity line of credit
A revolving line you draw on as needed during the draw period, usually at a variable rate, with interest charged only on what you have borrowed. Your first mortgage stays as it is. The fit for projects paid in stages, tuition due each term, or a reserve you may never need to use.
Fixed sum
Home equity loan
One lump sum at a fixed rate, repaid with a level payment over a set term, behind your first mortgage. The fit when you know the amount, want the certainty of a fixed payment and want to keep the mortgage you have.
One mortgage
Cash-out refinance
Replaces your mortgage with a larger one and hands you the difference at closing, so you end up with one loan and one payment, usually at a fixed rate. The fit when your current rate is close to today’s or you would rather carry a single mortgage.
How a line is opened and used.
Five stages, one pro, and you always know what happens next.
1
Tell us the plan
What the money is for, roughly what your home is worth and what you owe. We give you an honest read on the limit you could reach and whether a line, a home equity loan or a cash-out refinance costs least for your plan. No hard credit pull yet.
2
Apply and value the home
Income, assets and credit are verified once. Many lenders value the home with an automated valuation or a drive-by rather than a full appraisal on a line, which keeps costs down.
3
Close and wait three days
You sign, and when the line is secured by your principal residence, federal law gives you three business days to cancel before it opens; a line on a second home or rental opens without that wait. Closing costs on a line are often low, and some lenders pay them if the line stays open a set number of years.
4
Draw period
Borrow up to your limit by transfer, check or card, repay, and borrow again. Interest accrues only on the drawn balance, and many lenders ask for interest-only minimum payments during this stage.
5
Repayment period
The line closes to new draws and the balance is repaid with principal and interest. The payment steps up at this point, which is the one surprise we make sure nobody has.
HELOC, home equity loan or cash-out refinance?
The three side by side. Terms vary by lender; your pro confirms which apply to you.
| HELOC | Home equity loan | Cash-out refinance | |
|---|---|---|---|
| How you receive the money | Draw as needed during the draw period | One lump sum at closing | One lump sum at closing |
| Rate | Usually variable, tied to the prime rate; some lenders offer fixed-rate locks | Fixed | Usually fixed |
| Payment | Often interest-only on the drawn balance during the draw period, then principal and interest | Level principal and interest from the first month | One new mortgage payment on the whole balance |
| Your first mortgage | Stays as it is | Stays as it is | Replaced |
| Combined loan-to-value | Commonly up to 80 to 90 percent with the first mortgage | Commonly up to 80 to 90 percent with the first mortgage | Up to 80 percent conventional and FHA; VA higher |
| Closing costs | Often low; some lenders waive them if the line stays open a set period | Lower than a refinance; set by the lender | Generally 2 to 5 percent of the new loan |
| Best when | Costs arrive in stages or the amount is uncertain, and your first mortgage rate is worth keeping | You know the amount and want a fixed payment behind the mortgage you have | Your current rate is near today’s, or you want one loan and one payment |
Guidelines change and vary by lender. This table is a starting point, not a commitment to lend.
The line that pays for the project as the project happens.
A renovation is rarely one bill. The contractor wants a deposit, the cabinets are paid when they are ordered, the flooring when it arrives. A line matches that rhythm: you draw each amount as it comes due, pay interest only on what is out, and if the project comes in under budget you never borrowed the rest. Interest may be deductible when the funds buy, build or substantially improve the home that secures the line; ask your tax advisor.
The same logic fits tuition paid by the term, a business that needs working capital in bursts, or a reserve against a roof or a job change. The discipline to keep in mind is the repayment period: whatever is drawn when the draw period ends is repaid with principal and interest, so we show you that payment before you open the line, not when it arrives.
Is a line the right move?
This is your home securing the debt, so the honest answer matters more than the sale. Here is how we look at it.
A good fit if you want to
- Your current mortgage rate is well below today’s and you want to keep it
- The money is needed in stages, or you are not sure yet how much you will need
- You are putting the funds back into the home through work that adds value
- You want a reserve you can reach quickly without borrowing until you have to
- You have comfortable equity to spare and will still keep a healthy cushion
Probably not the right move if
- You want a fixed payment you can count on for the whole term; a home equity loan or a cash-out refinance may fit better
- Your current rate is near today’s and one new mortgage would be simpler and cheaper overall
- The draws would cover everyday expenses rather than something that lasts
- You would carry the balance into the repayment period without a plan for the higher payment
- You plan to sell soon and the line would have to be paid off at closing anyway
Equity, on standby
A line you draw on when the project, the tuition bill or the surprise arrives, and leave alone when it does not.
How a HELOC works with us.
Four steps, one pro, and you always know what happens next.
1
Tell us the plan
What the money is for and roughly what your home is worth and what you owe. We give you an honest read on the limit you could reach and which of the three options costs least. No hard credit pull yet.
2
See real numbers
Your pro shops the lenders we work with and comes back with the limit, the rate and how it moves, the draw and repayment terms and every cost, explained line by line.
3
Apply and value the home
Income, asset and property documents collected once. Many lenders use an automated valuation or a drive-by on a line, which keeps the cost and the timeline down.
4
Close and draw
You sign, the three-business-day right to cancel runs when the line is on your principal residence, and then the line is open. Draw what you need when you need it.
See what a line could give you.
A licensed pro estimates your home’s value, the limit you could reach and the payment during and after the draw period, then walks you through it beside the alternatives.
HELOC questions, answered.
The questions homeowners ask us most before they open a line. If yours is not here, a licensed pro will answer it directly, with no obligation.
How much could I borrow on a line?
Most lenders cap the first mortgage and the line together at 80 to 90 percent of the home’s value. On a $450,000 home with a $285,000 balance, an 85 percent cap allows a line of up to about $97,000. Your credit, income and the lender’s rules set the final limit.
How does the rate work?
Most lines are variable: the prime rate plus a margin the lender sets from your credit and equity. When the prime rate changes, your rate and the interest on your drawn balance change with it. Some lenders let you lock all or part of a drawn balance at a fixed rate; ask your pro whether the lenders quoting you offer that.
What is the payment during the draw period?
With many lenders, interest only on what you have drawn, so a line with nothing drawn costs nothing a month beyond any annual fee. Some lenders require a small amount of principal as well. Either way the payment rises when the repayment period begins, and we show you that figure before you open the line.
Does a HELOC replace my mortgage?
No. It is a second lien behind your first mortgage, which keeps its rate, term and payment. That is the main difference from a cash-out refinance, which replaces the mortgage with a larger one. If your current rate is well below today’s, keeping it is usually the point of choosing a line.
Is a HELOC better than a home equity loan?
Neither is better in general. A line suits money needed in stages or an amount that is not yet certain, at a rate that can move. A home equity loan suits a known amount with a fixed rate and a level payment. Your pro prices both, and a cash-out refinance, against your plan.
What does it cost to open?
Closing costs on a line are often lower than on a refinance, and some lenders pay them if the line stays open for a set number of years, with an early-closure fee if it does not. Some lines carry an annual fee. Every cost is on your disclosures before you commit.
Is the interest tax deductible?
It may be when the funds are used to buy, build or substantially improve the home that secures the line, within the federal limits on home acquisition debt. Interest on draws used for other purposes generally is not. Talk to your tax advisor about your situation.
Can I get a line on a rental or second home?
Some lenders offer lines on second homes and investment properties, usually with lower combined loan-to-value limits and higher pricing than on a primary residence. Ask your pro which of the lenders we work with do.
What happens when the draw period ends?
The line closes to new draws and the balance you owe is repaid with principal and interest over the repayment period, commonly 20 years. The payment steps up at that point. Homeowners who want to avoid the step often refinance the balance or pay it down before the draw period ends.
What credit score do I need?
Most lenders look for a score from about 680 for a line, with the best margins from the mid-700s, along with verified income and equity after the line within their combined loan-to-value cap. Lenders set their own rules, and your pro will tell you where your file fits.
Open a line in any of the 39 states we serve.
MortgagePros is licensed in each state below; license types vary by state and are listed on our Licensing page. Wherever your home is, the same pro is your point of contact from quote to closing.
AL · AR · AZ · CA · CO · CT · DE · FL · GA · IA · ID · IL · IN · KS · KY · LA · MA · MD · ME · MI · MN · MS · MT · NC · ND · NE · NJ · NM · OH · OK · OR · PA · SC · SD · TN · TX · VA · WA · WI
Get your HELOC quote.
Tell us what your home is worth and what you owe. A licensed pro will call with the limit you could reach, how the rate works and every cost, usually the same business day. Asking does not start a loan or require a hard credit pull.
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248-416-1361
Open 24/7. Ask for a home equity specialist.
What happens next
A short call about your plan for the money, then a written quote with the limit, the draw and repayment terms and every cost. No hard credit pull until you decide to move forward.
Licensed and reviewed
Licensed in 39 states. NMLS #1925352. Rated 4.9 across 5,300+ Google reviews.