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How to Get a Home Equity Line of Credit (HELOC)

How To Get A Home Equity Line Of Credit (HELOC)

If you’re a struggling homeowner, you will want to know how to get a home equity line of credit (HELOC). It’s a line of credit that is borrowed from a person’s house equity. 

You can use it to purchase products and services, much like a credit card. Know how it works and how it can help today, so you’re prepared for any emergency.

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

You can borrow from the difference between your home’s appraised value and the amount of mortgage paid. HELOCs are available as either a home equity loan or a line of credit. The former provides a lump sum, but the latter allows you to borrow repeatedly within a limit. 

Nowadays, it even comes with a HELOC card, further sharing similarities with conventional plastic swipers.

How a HELOC Works

To start your HELOC application, you should check your local bank or credit union for their home equity options. They will check your home equity, your current income, and your credit rating. 

These will have to meet their eligibility requirements before anything else. Also, your lender will provide home equity offers based on this information.


Home equity lines of credit typically have a loan amount, repayment period, draw period, and an interest rate. People can borrow up to 85% of equity in your home, but their actual credit limit will depend on various factors. 

Lenders always want their money back, so they prefer borrowers with good credit and a stable income. If you have these, you can receive your lender’s best offers.


Your HELOC will also have a repayment period and a draw period. Let’s say you have the most common 30-year repayment period with a 10-year draw period. You’ll be able to make transactions for a decade, then the credit line will freeze.

For the next 20 years, you must repay the HELOC on time every month. Home equity lines of credit also have interest rates similar to credit cards. It’s a tax-deductible variable interest rate, meaning your monthly payments may fluctuate over time. 

The interest rate is based on the US prime rate, but lenders can freely implement adjustments. If you would like to have fixed rates instead, you could pay to lock it in.

Your lender might have other terms and conditions that weren’t included in our examples though. We mentioned that a HELOC usually allows repayment after the draw period. However, some banks may require you to pay the line of credit back before the draw period ends. 

It’s best to check all credit institutions available and understand their closing costs and other loan terms.

Does a HELOC Hurt your Credit?

As the name implies, taking out a home equity line of credit can impact your credit score. Credit bureaus will check them along with your other debts, and they will update your rating based on those balances. 

You must also repay your equity line on time to avoid hurting your credit score. After all, payment history has the heaviest bearing in most credit scoring models. Your score will increase with diligent payments and decrease with late ones.

This is why you should be confident that you can repay before applying and finalizing the credit lines

Pros and Cons of HELOCs

All forms of credit pose their own share of benefits and risks. It’s generally beneficial when the economy is good and risky when the economy is poor. More importantly, remember that you risk losing your home when borrowing from its equity. 

Choose your HELOC carefully, and look for all possible alternatives.

Advantages of HELOCs

This type of credit could be especially advantageous if your home’s appraised value is high. Your home equity can rise as a result, so it enables you to borrow more funds. 

Good economic conditions could also favor your home equity line since it may lower your interest rate. They can be inclined to lower their rate in these situations, including yours.

Advantages of HELOCs

It’s also better to use a home equity line of credit if you only need a relatively small amount. You can take out a loan from your equity, but those are usually for large expenses such as home improvements

In contrast, a HELOC could be used as a credit card, so it’s better for everyday expenses. Regardless, both options can still hurt your credit if you mismanage them.

Disadvantages of HELOCs

On the flip side, a HELOC may be frowned upon during economic uncertainty. Due to a variety of reasons, your creditor can freely adjust interest rates in response. You can pay for a fixed interest rate to prevent it from shooting up. 

It could protect your loan from rising interest rates, but it could be unfavorable if rates fall.

Most importantly, keep in mind that you risk foreclosure when you borrow from equity. Your home is put up as collateral as part of your loan agreement. Fail to complete payments, and you risk losing your home. 

Make sure you can handle this type of credit and understand all terms and conditions before applying.

Where to Get a HELOC

Nowadays, there are now even more ways of taking out a home equity line of credit. You can visit your local bank or credit union for their home equity options. On the other hand, there are now online sources for HELOCs that can provide better deals. 

Check both types of lenders and see which one suits you best.

Conventional Banks

There are numerous banking institutions with proven track records spanning decades. As they’ve been around for years, they are much pickier when approving lenders. 

In addition, you can have to visit their physical branches in order to start your HELOC application. The approval also takes a long time, and banks may take weeks or months to send funds. 

Online Lenders

Nowadays, you can find online alternatives for nearly everything, including loans. You’ll find numerous online lenders that provide more convenient services than traditional options. You can apply for loans faster, and they could wire your funds within hours or days. 

This can be especially helpful if you urgently need funds, and you cannot wait for the slow processes of traditional banks.

Online Lenders

Online lenders have no lengthy proven records compared to conventional establishments. These online options are relatively new, so they may change as time goes on. The archaic processes of traditional banks may be inconvenient, but they have been trusted longer than online alternatives. 

Nevertheless, you should check all viable options and scrutinize their offers before applying.

HELOCs During COVID-19

The current coronavirus pandemic affects all facets of everyday life including the economy. Countries have imposed lockdowns to protect their citizens from the contagion. 

In response, borrowers and lenders now exercise more caution, causing a decline in loan applications. For example, the Mortgage Bankers Association reported that Americans are now more hesitant to borrow from home equity.

You might want to take advantage of the unusually low interest rates caused by the pandemic. Your HELOC can have lower monthly payments as a result. More importantly, you must have more funds ready during this unprecedented economic downturn. 

Extra spending power will help you weather any potential problems you might encounter. 

Again, check all possible options and understand their terms and conditions prior to application. Loans might aid you in enduring the economic effects of the global pandemic. 

Banks and credit unions are even providing options geared for this worldwide crisis. However, poorly choosing a loan could cause you more harm than good.

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