Home equity
HELOC loans
The right tool when your first mortgage rate is better than today's market.
What a HELOC loan actually is
A home equity line of credit is a revolving second lien. You are approved for a limit, you draw what you need when you need it, and you pay interest only on the outstanding balance during a ten-year draw period. After the draw closes, the line converts to a twenty-year amortizing repayment period.
The rate is variable, set at the Wall Street Journal Prime Rate plus a margin determined by your combined loan-to-value and credit score. That variability is the trade-off for the enormous advantage: your first mortgage is untouched. For a household holding a 3.25% first mortgage, replacing it through a cash-out refinance to access $60,000 is one of the most expensive things they could do.
Best suited to
- Homeowners holding a first mortgage well below current market rates
- Staged renovations where the money is needed over eighteen months, not on day one
- A standby reserve for self-employed households with irregular income
- Bridging a purchase before an existing home sells
What comes with the loan
- Blended-rate analysis comparing the HELOC against a cash-out refinance of the whole balance
- Automated valuation model used where it qualifies, avoiding a full appraisal on most files
- Fixed-rate lock option on up to three portions of the drawn balance at any one time
- No early closure fee after year two; $450 recovery of third-party costs before that (sample)
- Draw by online transfer, check or card, with same-day availability
- A written schedule of what the payment becomes when the draw period ends
How a file moves
- 01
Combined LTV check
First mortgage balance plus the requested line divided by value. Under 85% we have room; over it we look at a smaller line or a fixed second.
- 02
Application
Credit, income and a valuation. Most files clear with an automated valuation rather than a full appraisal.
- 03
Underwriting
Simpler than a first mortgage. Median approval to closing on our HELOCs is 16 business days (sample figure).
- 04
Closing
Signed at our office or by mobile notary. Three business day rescission applies on a primary residence before the line becomes available.
- 05
Using the line
Draw online or by check. We send an annual statement projecting the repayment-period payment so the conversion is never a surprise.
Why borrowers choose it
Your first mortgage stays
A low, locked first-mortgage rate is an asset. A HELOC does not touch it.
Pay only for what you draw
Interest accrues on the outstanding balance, not the approved limit.
Fixed-rate portions
Lock up to three segments of the drawn balance at a fixed rate while the rest stays variable.
Reusable
Repay a draw and the availability returns for the remainder of the ten-year period.
What to watch out for
- The rate is variable and moves with Prime. A 1.00% move on a $75,000 balance is $62 a month.
- The payment jumps when the draw period ends and principal begins amortizing over twenty years.
- A HELOC must be paid off or resubordinated when you refinance the first mortgage.
HELOC questions we get asked
Still unclear? Call (215) 555-0145 and ask for the originator covering your county.
All questionsWall Street Journal Prime plus a margin between 0.250% and 2.500%, determined by your combined loan-to-value and credit score. The rate adjusts when Prime moves. We disclose the margin, the current Prime and the resulting rate in writing before you sign.
The draw period closes and the outstanding balance amortizes over twenty years. A $60,000 balance that cost roughly $375 a month interest-only becomes around $520 a month fully amortizing at the same rate. We send an annual projection so this is never a surprise.
Usually not. Most of our HELOC files clear valuation with an automated model, which costs nothing and takes a day. A full appraisal is ordered where the property is unusual, the combined loan-to-value is tight, or the model declines to produce a value.
Yes, but the HELOC lender must agree to resubordinate so the new first mortgage keeps first position. That takes two to four weeks and a fee from the HELOC lender. Factor it into any future refinance timeline.
Programs worth comparing
Home equity loan
Fixed-rate second lien, 5 to 20 year terms
Cash-out refinance
To 80% LTV on one unit, 75% on two to four units
Rate and term refinance
Lower the rate, shorten the term, or drop mortgage insurance
Find out if HELOC fits
Fifteen minutes, a soft credit pull, and a straight answer about which program actually suits your file.
No application fee. Soft credit pull at pre-qualification. Flat $1,095 origination at closing.