Frequently Asked Questions

Have questions? We have answers. Find information on HELOCs below.

What is a Home Equity Line of Credit (HELOC)?

A HELOC is a revolving line of credit that lets you borrow against the equity in your home. It works like a credit card: you have a set credit limit and can draw funds as needed during a 'draw period' (usually 10 years). During this time, you typically only pay interest on the amount you've borrowed.

How is my HELOC credit limit determined?

Lenders typically calculate your limit based on a percentage (usually up to 85%) of your home's appraised value, minus your outstanding mortgage balance. This is known as the Combined Loan-to-Value (CLTV) ratio. Your credit score and income also play a significant role.

Are HELOC interest rates fixed or variable?

Most HELOCs have variable interest rates, meaning the rate can change over the life of the loan, causing your monthly payments to fluctuate. The rate is usually based on a benchmark index, like the U.S. Prime Rate, plus a margin set by the lender.

What's the difference between a HELOC and a Home Equity Loan?

A HELOC is a revolving line of credit you can draw from as needed. A Home Equity Loan is a one-time, lump-sum loan with a fixed interest rate and predictable monthly payments. A HELOC offers flexibility, while a home equity loan provides stability.

What are the risks of a HELOC?

The biggest risk is that your home is used as collateral. If you are unable to repay the loan, the lender can foreclose on your property. Additionally, because the interest rate is variable, your payments could increase significantly, potentially straining your budget.

How can I use the funds from a HELOC?

You can use the funds for almost any purpose, including home renovations, debt consolidation, education expenses, or major purchases. However, be aware that the interest is only potentially tax-deductible if used to 'buy, build, or substantially improve' the home securing the loan.