HELOC is short for “home equity line of credit.” It’s a line of credit like a credit card but with one huge difference—it’s secured by collateral. That collateral is your home equity, so if you fail to make your HELOC payments, your lender could foreclose on your home.
A HELOC works like a credit card during the initial “draw” period, which usually lasts 10 years. During that time many lenders offer interest-only payment options, which keep your monthly payments low but don’t reduce your loan balance. Once the HELOC draw period ends, you’ll have to start making full payments that cover both principal and interest.
See current HELOC rates today.A home equity loan is a type of second mortgage that allows you to borrow against the equity you’ve built in your home. “Second mortgage” simply means the loan is attached to a home that already has a mortgage.
Home equity loans work like regular mortgages. Lenders qualify you based on your income and credit scores and verify your home’s value with a home appraisal. You receive all your money at one time and make monthly installment payments. When you get a home equity loan, your home is used as collateral until you pay your loan off, so you risk foreclosure if you don’t make your payments.
See current home equity loan rates today.LOAN AMOUNT | APR AS LOW AS Rates are calculated based on conditional offers for both home equity loans and home equity lines of credit with 30-year repayment periods presented to consumers nationwide by LendingTree’s network partners in the past 30 days for each loan amount. Rates and other loan terms are subject to lender approval and not guaranteed. Not all consumers may qualify. See LendingTree’s Terms of Use for more details. |
|---|---|
$25,000 | 6.63% |
$50,000 | 6.63% |
$100,000 | 6.63% |
$150,000 | 6.50% |
Assuming a borrower who has spent up to their HELOC credit limit, the monthly payment on a $50,000 HELOC at today’s rates would be about $357 for an interest-only payment, or $436 for a principal-and-interest payment. But when you get a HELOC, you only have to make payments on the money you’ve used, so if you haven’t used the full amount of the line of credit, your payments will be lower.
At current market rates, the monthly payment on a $50,000 home equity loan with a 20-year loan term would be about $410.
Assuming a borrower who has spent up to their HELOC credit limit, the monthly payment on a $75,000 HELOC at today’s rates would be about $517 for an interest-only payment, or $640 for a principal-and-interest payment. But when you get a HELOC, you only have to make payments on the money you’ve used, so if you haven’t used the full amount of the line of credit, your payments will be lower.
At current market rates, the monthly payment on a $75,000 home equity loan with a 20-year loan term would be about $612.
Assuming a borrower who has spent up to their HELOC credit limit, the monthly payment on a $100,000 HELOC at today’s rates would be about $629 for an interest-only payment, or $809 for a principal-and-interest payment. But when you get a HELOC, you only have to make payments on the money you’ve used, so if you haven’t used the full amount of the line of credit, your payments will be lower.
At current rates, you would pay about $825 each month for a $100,000 home equity loan. Assuming a 20-year repayment term, you’ll end up paying $97,917 in interest over the life of that loan.
| Loan amount | Monthly payment |
|---|---|
| $25,000 | $160.08 |
| $50,000 | $320.16 |
| $100,000 | $640.31 |
| $150,000 | $948.10 |
You can calculate your home’s equity by subtracting your current loan balance from what you think your home is worth:
Our home equity loan calculator does the extra math to find how much of that equity you could use. You can use our calculator to find out how much you can borrow with either a HELOC or home equity loan, since the calculations are identical.
If you would like to crunch the numbers yourself, here’s how you can do it.
If you prefer to estimate how much home equity you may be able to borrow yourself, here’s the formula you can use:
You only need three pieces of information to find your estimate:
Our calculator limits you to an 85% loan-to-value (LTV) ratio, the industry standard set by most home equity lenders. That means the total balance of both your current mortgage and new home equity loan or HELOC can’t exceed 85% of your home’s value.
However, some specialized home equity lenders let you borrow up to 100% of your home’s value. Learn more about getting a high-LTV home equity loan.
Most lenders qualify you based on the following home equity requirements:
For borrowers with a credit score under 620 or who are carrying a high debt load already, getting a home equity loan can be tough. It’s also not going to be possible to tap your home equity if you haven’t had much time to build up that equity — and lenders typically require that you maintain at least 15% equity after you take the new loan out.
However, if you meet a lender’s basic requirements, you can access cash pretty quickly and easily — it’s not uncommon to close on a home equity loan in as little as a few weeks.
If you have low credit (under 620) or a hefty amount of debt, getting approved for a HELOC may not be in the cards. It’s also not going to be possible to tap your home equity if you can’t maintain at least 15% equity after taking your current mortgage and the new HELOC loan into account.
That said, if you meet a lender’s qualifications, it can be fairly fast and easy to convert your home equity to a line of credit. In fact, you can close on a HELOC in as little as five days.
Much like a home equity loan or HELOC, a cash-out refinance allows you to borrow cash secured by your home equity. However, with a cash-out refinance you’ll replace your existing mortgage with a new one that has a larger loan amount than you currently owe. The new mortgage pays off your old loan, and you take the difference away in cash.
You’re typically limited to an 80% LTV ratio with a cash-out refinance, meaning your borrowing power may be a little more limited than it would be with a second mortgage.
If you have low credit, look into an FHA cash-out refinance — you may qualify with a credit score as low as 500. Otherwise, you’ll need at least a 620 to qualify for a cash-out refinance through conventional or VA lenders.
Read more about when to choose a home equity loan vs. HELOC vs. cash-out refinance.In most cases, you’ll spend 2% to 5% of your home equity loan or home equity line of credit amount toward closing costs.
It takes roughly two to four weeks to complete a home equity loan.
If you don’t have enough home equity for a loan now, try these three steps to help you build equity in your home:
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