Home Equity Loans & HELOCs
Home equity loans and home equity lines of credit (HELOCs) both let homeowners borrow against the equity in their property, but they work differently: a home equity loan provides a lump sum with a fixed rate, while a HELOC works more like a credit card with a revolving credit line, often at a variable rate.
Who It Tends to Fit
These products tend to fit homeowners who have built meaningful equity and want to fund a specific goal — such as a renovation, debt consolidation, or a major expense — without refinancing their entire first mortgage.
Key Features
- Home equity loan: a lump-sum second loan with a fixed rate and fixed monthly payment
- HELOC: a revolving credit line with a draw period followed by a repayment period, typically at a variable rate
- Both are usually secured by the home, meaning the property can be at risk if payments aren't made
- Combined loan-to-value limits set by the lender determine how much can be borrowed against your equity
General Qualifying Factors
- Sufficient equity in the home, typically leaving a lender-defined maximum combined loan-to-value ratio
- Credit and income that meet the lender's guidelines for a second lien
- An appraisal or valuation to confirm current home value
- An existing first mortgage in good standing, in most cases
Exact requirements vary by lender and can change over time, so treat the figures above as general starting points rather than guarantees. A licensed loan officer can confirm current guidelines for a specific program.
Costs to Expect
Costs vary by lender and product — some HELOCs have low or no closing costs, while others include appraisal, origination, and annual fees, so it's worth comparing the full fee schedule, not just the rate.
Also Worth Knowing
Because a HELOC's rate is often variable, monthly payments can change over time; some lenders offer the option to lock a portion of the balance at a fixed rate.