HELOCs & HELOANs 101: Eligibility, Benefits & More
Home Equity Loans (HELOANs) and Home Equity Lines of Credit (HELOCs) can be a powerful tool for accessing the value of your home. Learn about this program below.
What Are HELOCs and HELOANs?
HELOCs give you a revolving line of credit
A HELOC works like a line of credit or a credit card. You borrow up to a fixed amount and make payments to replenish your available balance and continue using money.
HELOANs give you a lump sum of money
A HELOAN provides you with a large, one-time deposit that you make monthly payments on until the balance is cleared. You can typically get more upfront with a HELOAN than a HELOC.
No restrictions on the use of borrowed funds
You can use the money from either program for home improvements, debt consolidation, education expenses, or other large financial goals.
What Can HELOCs and HELOANs Be Used For?
Home improvements
Planning on making upgrades? Cover renovation projects like updating your bathroom, finishing a basement, or adding energy-efficient features by tapping into your home equity.
Debt consolidation
If you’re juggling multiple debts, you can use a HELOAN to pay off credit cards or installment loans. This may make it easier to stay on top of payments and help you save on interest over time.
Funding major expenses
When unexpected expenses come up, you can access your home equity for things like hospital bills and emergency car repairs without having to pay as much interest as other financing programs.
Pros
- Get money all at once with a HELOAN
- Get money as needed with a HELOC
- Attractive interest rates
- No usage restrictions
Cons
- Requires home equity
- Carries typical closing costs
- HELOCs may have draw period limitations
- Risk of owing more than the home’s value
Talk to our mortgage experts today about finding the right loan for you.
HELOC & HELOAN Alternatives Programs
- Borrow against your home equity for cash
- Replaces your existing mortgage with another one
- Increases your loan balance
- Offers fixed and adjustable-rate options
- Available for senior homeowners
- No required monthly mortgage payments
- Receive funds as lump sum, monthly, or credit line or a combination of these
- Repayment deferred until the home changes ownership
- Combines home purchase and renovation costs
- Covers cosmetic and structural improvements
- Attractive down payment options
- Backed by the Federal Housing Administration
How Do I Know If Borrowing Against My Home Equity Is Right for Me?
You have enough home equity
Both programs require that you have built up enough equity in your home to borrow against. You will need to have paid a significant portion of your mortgage before taking out a HELOC or HELOAN.
You have large or ongoing expenses
If you need money for a large expense, like a new car or debt consolidation, a HELOAN is ideal. If you have smaller, ongoing expenses like home renovations or medical bills, a HELOC can cover costs over time.
You’re comfortable taking on a second mortgage
HELOCs and HELOANs are both second mortgages, so it’s important for borrowers to weigh the pros and cons of this financial move before signing on the dotted line.
When Is the Best Time to Use a HELOC or HELOAN?
The best time to consider a HELOC/HELOAN is when you have accrued enough equity in your property to borrow against and you need fast access to money for sudden or planned expenses.
For example, if you’ve reached a significant milestone like getting married, having a baby, or starting a business, this program can give you access to the money you need without a complicated repayment plan. It can also be useful when you’re changing careers, retiring, or sending a child to college.
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FAQ
Can I increase the limit of an existing HELOC?
You may be able to increase your HELOC limit if your home’s value has increased, or you’ve paid down the balance. However, this typically requires a new appraisal and a review of your financial circumstances.
How does the draw period work with a HELOC?
How much interest will I pay?
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