When you pay down your mortgage or your home goes up in value, you build equity. In some cases, you can end up with a lot of equity, and you may want to tap that equity for other things like paying down debt or improving your home.
A HELOC.com line of credit lets you tap into that equity quickly, with approval in as little as five minutes and funds available in as little as five days3.
A loan from HELOC.com is secured by your home, just like your first mortgage, but your first mortgage isn't affected when you borrow. Instead, you're taking out an entirely new loan that provides a lump sum up front and allows you to redraw funds, or borrow again, during the draw period after paying down the principal balance4.
Here's how a HELOC.com line works, along with some details about how this loan compares to the alternatives.
What Is a HELOC.com Line of Credit?
A HELOC.com line of credit offers the certainty of a home equity loan and the flexibility of a traditional home equity line of credit.
With a HELOC.com line, you receive the full amount you're approved to borrow up front. As you pay principal back, that paid-down amount becomes available to borrow again during the draw period.
For example, if you took out a $100,000 loan and repaid $10,000 in principal, you can borrow an additional $10,000 during the allowable draw period. If you've paid off the principal of $20,000, $30,000 or any amount, you'll be able to borrow again up to that amount during the draw period.
How Does the Redraw Option Work On the HELOC.com Line of Credit?
The draw period is one of the features that sets the HELOC.com line apart.
After your loan closes, you enter a draw period that lasts for a set period of time, depending on which repayment term you choose. Options include:
- A three-year draw period for loans with a 10-year term
- A four-year draw period for loans with a 15 or 20-year term
- A five-year draw period for loans with a 30-year term
During the draw period, any principal you repay becomes available to borrow again, up to your original credit limit. So if you repaid $25,000 in principal, you could redraw up to $25,000 again during the draw period.
You will not need to undergo a new hard credit check when you make a redraw request, even if it's years after the initial application.
However, when you do a redraw, each new draw receives its own fixed rate that's set at the time you borrow. The rate on the original amount you borrowed doesn't change. The new rate only applies to the money you're borrowing in the redraw. It's based on the Prime Rate plus a fixed margin set in your HELOC agreement.
Your agreement also specifies a minimum rate (the rate floor) and a maximum rate (the rate ceiling), so the rate on any future draw will always fall within those defined boundaries, regardless of where the Prime Rate moves. This means there are no big surprises.
Once the draw period ends, no additional draws are permitted. From that point forward, you'll work on repaying your balance during the remainder of your loan term.
How Does Interest Work on the HELOC.com Line of Credit?
When you get your initial HELOC.com line, it comes with a fixed interest rate. If you take advantage of the redraw option and borrow again later, the amount you redraw will receive its own new fixed rate, based on rates at the time.
In fact, each time you take a new draw, that new amount will have a new rate. So, for example, if your initial loan amount is $100,000 and you later repay $10,000 of principal, you could redraw that $10,000 during the draw period. If rates are different at that time, the new $10,000 draw would be funded at the new fixed rate based on market rates when you're taking out the new loan.
How Do Payments Work on a HELOC.com Line of Credit?
No matter how many redraws you do, your HELOC.com line will only have one monthly payment.
However, if you take any additional draws during the draw period, your monthly payment will probably increase because your new draw will have a different rate and your balance will be higher.
The amount of your payment will be based on:
- Your outstanding loan balance
- Your interest rate
- The repayment period you choose
You can select a repayment term of 10, 15, 20, or 30 years, and you will have that full term to repay your balance. Home equity lines with longer repayment terms will likely have lower monthly payments, but you pay more interest over the life of the loan.
When you're repaying your loan, you can sign up for autopay or pay each month manually. There are no prepayment penalties, so paying off your loan early should reduce your overall interest costs.
Because you pay both principal and interest the whole time you have your loan, you won't have a big balloon payment to make at the end, as you do with some traditional home equity lines of credit. This reduces the risk of payment surprises.
How Much Can You Borrow?
Your available loan amount depends on several factors, but your home's value is probably the most important.
HELOC.com uses a combined loan-to-value ratio, which means the total amount of both your HELOC.com line and your original mortgage is compared to your home's value. The total value of your loans can't add up to more than 85% of what your home is worth, subject to underwriting requirements, but your loan could be as high as $400,000 if you have enough equity.
So, how does this work in practice? Let's say your home is worth $400,000 and you currently owe $200,000 on your first mortgage.
- 85% of $400,000 is $340,000
- If you owe $200,000 on your first mortgage, that leaves up to $140,000 in potential borrowing capacity
In this example, you could potentially qualify for a HELOC.com line of up to $140,000, subject to credit, property, and underwriting review.
HELOC.com Line of Credit vs. Cash Out Refinance Loans
Both a HELOC.com line and a cash-out refinance loan allow you to access your home's equity and use the money for other things. However, there are big differences between them.
A cash-out refinance loan replaces your current mortgage with a new, larger loan used to pay off your original mortgage and give you cash at closing. That makes sense if you aren't happy with your current mortgage rate and you want one new loan with one monthly payment. It may not make sense if your current mortgage rate is very low and you don't want to give it up to access your equity.
Unfortunately, even if you can qualify for a new cash-out refinance loan at a better rate than your current mortgage, cash-out refinance loans often take weeks to qualify for. This is something to consider if you need funding quickly.
And, if you refinance into a new 30-year loan, that means the term of your loan restarts to 30 years. So, for example, if you'd been paying your current mortgage for a decade, you'd add 10 years to your repayment time line.
A HELOC.com line works differently. It lets you access equity without refinancing your first mortgage. That means you get to keep your first mortgage if you are happy with the rate and don't want to replace it. It also means that your original loan term won't change. A HELOC.com line could also be funded in as few as five days, so it's an option if you need to borrow quickly.
Is the HELOC.com Line of Credit Right for You?
HELOC.com lines have some significant benefits, but the important thing is to make sure these loans make sense for your situation. A HELOC.com line could be a good borrowing option if you:
- Want to access home equity without refinancing your first mortgage.
- Need cash now.
- Value the option to redraw funds later as you repay principal.
- Are comfortable managing a second loan with a separate monthly payment.
It may be less ideal if you:
- Want a single mortgage payment.
- Plan to refinance your first mortgage anyway.
- Don't want to use your home as collateral for a second loan.
- Only need a one-time lump sum and don't need ongoing access to funds.
If HELOC.com sounds like a fit, you can start your online application or connect with our team by phone, text, or chat to learn more. With the HELOC.com line, you can get approval in as little as five minutes and get your loan funds in as few as five days3, so get started now so you can put your home equity to work sooner.