Home Equity Lines of Credit

A home equity line of credit (HELOC) is a line of credit secured by your home. This revolving loan lets you borrow money as you need it up to a specific limit. Once you pay it back, you can borrow from it again.

When you take out a HELOC, you borrow money against the equity in your home, which acts as collateral for the line of credit. You get a set draw period and credit limit during which you can continually borrow and repay as needed. Once the draw period ends, you have a set repayment period.

Both home equity lines of credit and home equity loans allow you to obtain a loan using the assessed value of your home. These accounts may help you achieve the same ends, but they are not the same.

They allow you to draw money or borrow multiple times from your available amount. With a home equity loan, you receive a lump sum payment, typically with a fixed interest rate.

HELOCs work like credit cards offering revolving credit lines, except your home is used as collateral for the credit. Home equity loans are traditional loans — you borrow a specific amount given to you as a one-time cash payment. You must then pay regular monthly payments for a fixed payment period. 

Yes. You can refinance your house with a home equity line of credit. There are various ways to do this, including refinancing to another HELOC, using fixed-rate home equity loan funds or paying solely by cash-out refinance.

To get a home equity line of credit, you typically need at least 20% equity in your home, a good credit score and an acceptable debt-to-income (DTI) ratio. Lenders also require you to have a steady and adequate income to enable you to pay the balance during the payment period. 

You can apply for a line of credit if you meet all of these qualifications. The application process typically involves submitting your personal information, employment records, financial assets, debt and collateral information. After applying, you may wait about a month to close. 

Based on a standard 85% borrowing amount, you could get up to $255,000 for a home valued at $300,000. The amount of credit you can get may depend on factors such as the value of your home and the remaining mortgage you owe. It may also vary based on factors like:

• Credit score
• Employment history
• Monthly income

The monthly payment for a home equity line of credit varies. It may change based on the loan amount, interest rate, annual fee and payoff goal. 

For example, a $50,000 line of credit with 4% interest and a 20-year term would require monthly payments of about $303 to pay it off. A $75,000 line of credit with the same interest and loan term would require monthly payments of $454. If you take out a line of credit for $100,000, you would need to pay $606 each month for 20 years to pay it off. 

Bigger payments mean you can pay off the amount faster with less interest.