Home Equity Lines of Credit (HELOCs): What you need to know

A quick note before we dive in

We don't offer HELOCs at MortgageCS. But we get asked about them all the time, so we put together this guide to help you understand how they work and where to find the best rates.

The short version: banks and credit unions are your best bet for HELOCs. They typically offer better rates than mortgage companies because they're lending their own money and want to build a long-term relationship with you.

What is a HELOC?

A Home Equity Line of Credit (HELOC) lets you borrow against the equity in your home. Think of it like a credit card secured by your house. You get a credit limit based on your equity, and you can draw from it as needed during what's called the "draw period" (usually 5-10 years).

HELOCs have variable interest rates, which means your payment can go up or down based on market conditions. This is different from a home equity loan, which has a fixed rate and fixed payments.

When does a HELOC make sense?

HELOCs work well when you:

• Need flexible access to funds over time (like for ongoing home improvements)
• Want to pay interest only on what you actually borrow
• Have a plan to pay it back relatively quickly
• Are comfortable with variable interest rates

They're not ideal if you need a lump sum with predictable payments. For that, a home equity loan or cash-out refinance might be better.

Where to get the best HELOC rates

Local banks and credit unions

This is where you'll typically find the best rates. Credit unions especially tend to offer competitive terms because they're member-owned and not focused on maximizing profits.

A few things to look for:

• Introductory rates: Many banks offer low intro rates for the first 6-12 months
• Rate caps: Look for limits on how high the rate can go
• Fees: Some charge annual fees, others don't
• Draw period length: Longer is usually better for flexibility

What to compare

When shopping for a HELOC, compare:

• The margin (what's added to the prime rate)
• Annual fees
• Early closure penalties
• Minimum draw requirements
• How payments work during the repayment period

HELOC vs. cash-out refinance

If you're tapping your equity, you might also consider a cash-out refinance. Here's the difference:

HELOC:

• Variable rate
• Flexible borrowing
• Keeps your first mortgage intact
• Better for ongoing expenses or uncertain amounts

Cash-out refinance:

• Fixed rate option available
• Lump sum
• Replaces your current mortgage
• Better if you also want to lower your mortgage rate

We do help with cash-out refinances, so if that sounds like a better fit for your situation, we'd be happy to talk.

Need help deciding?

Even though we don't offer HELOCs, we're happy to chat about whether a HELOC or another option makes more sense for what you're trying to accomplish. Sometimes a quick conversation can save you from going down the wrong path.

Schedule a call and we'll help you figure out the best approach for your situation.