HELOC Loans
A Home Equity Line of Credit (HELOC) is a type of revolving credit secured by the equity you have built up in your home. It functions similarly to a credit card — lenders approve you for a maximum borrowing limit based on your home’s value and your outstanding mortgage balance, and you can draw funds as needed during the “draw period,” usually 5 to 10 years. You only pay interest on the amount you actually use, making it a flexible borrowing option for expenses like home renovations, education costs, or debt consolidation.
After the draw period ends, the repayment period begins — typically lasting 10 to 20 years — during which you can no longer withdraw funds and must repay both principal and interest. HELOCs often have variable interest rates that fluctuate with market conditions, meaning monthly payments can change over time. Because your home serves as collateral, responsible borrowing is essential; missed payments could lead to foreclosure.
Some Key HELOC Features
Secured by Home Equity:
A HELOC is backed by the equity in your home, which is the difference between your home’s market value and the amount you still owe on your mortgage. This security allows lenders to offer lower interest rates compared to unsecured loans.
Revolving Line of Credit:
Unlike a traditional loan where you receive a lump sum upfront, a HELOC works like a credit card — you can borrow funds, repay them, and borrow again up to your approved limit during the draw period.
Variable Interest Rate:
Most HELOCs have variable rates tied to the prime rate or another financial index. This means your interest rate — and monthly payments — can fluctuate over time depending on market conditions.
Interest-Only Payments During Draw Period:
During the draw period (usually the first several years), many lenders allow you to make payments on the interest only, keeping monthly payments lower. However, you’ll still owe the principal later.
Draw Period Length (5–10 Years):
The draw period is the time frame when you can access funds from your HELOC. It typically lasts between 5 and 10 years, depending on the lender’s terms.
Repayment Period (10–20 Years):
Once the draw period ends, you can no longer withdraw money. You’ll enter the repayment phase — usually lasting 10 to 20 years — where you must pay back both the principal and interest.
Potential Tax Deduction:
The interest paid on a HELOC may be tax-deductible if the borrowed funds are used to buy, build, or substantially improve the home that secures the loan. Always check with a tax professional for eligibility.
Minimum Draw or Balance Requirements:
Some lenders require you to withdraw a minimum amount when you first open the line or maintain a certain balance throughout the loan to keep the account active.
Flexible Access to Funds:
You can access your HELOC funds through various methods, such as writing checks, using a linked credit card, or transferring funds to your bank account — providing convenient access whenever you need it.
Risk of Foreclosure:
Because your home serves as collateral, failing to make payments can result in the lender foreclosing on your property. Responsible borrowing and repayment are essential to protect your home.
5) FHA loans allow for higher debt-to-income ratios, which can help borrowers with higher levels of debt qualify for a mortgage
6) FHA loans can be used to purchase a variety of property types, including single-family homes, multi-unit properties, and condominiums
7) FHA loans offer options for refinancing, including streamline refinancing and cash-out refinancing, which can help borrowers lower their monthly mortgage payments or access equity in their home.
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Copyright ©2021 Team Gomez | NMLS# 1574365
Licensed to do business in TX
This is not an offer to enter into an agreement. This is not a commitment to make a loan. Not all customers will qualify. Information, rates and programs are subject to change without prior notice. All products are subject to credit and property approval. All approvals are subject to underwriting guidelines. Not all products are available in all states or for all dollar amounts. Other restrictions and limitations may apply. VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit standards, and property limits. NEXA Mortgage, LLC is not affiliated with any government agencies. These materials are not from VA, HUD or FHA, and were not approved by VA, HUD or FHA, or any other government agency.
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