The Home Equity Line of Credit (HELOC) is one of two primary ways homeowners access their accumulated equity, alongside the cash-out refinance.
How HELOCs work
- Draw period — typically 10 years. Borrower can draw funds up to the credit limit at any time. Monthly payments during draw period are usually interest-only on the outstanding balance
- Repayment period — typically 10-20 years following the draw period. Borrower can no longer draw new funds; must pay principal and interest on the outstanding balance
- Variable rate — most HELOCs have rates tied to the Prime Rate plus a margin. Rate can change as Prime moves
- Credit limit — typically up to 80-85% of combined LTV (first mortgage plus HELOC limit)
HELOC vs cash-out refinance
Both let borrowers access home equity, but they work differently:
- HELOC — second lien, revolving credit, variable rate, draw funds as needed, doesn’t affect existing mortgage. Best for ongoing or uncertain expense needs (renovations, college tuition over time)
- Cash-out refinance — replaces existing mortgage with a larger one, lump-sum cash at closing, fixed rate, typically lower than HELOC variable rate. Best for one-time large expenses or debt consolidation when rates have moved favorably
HELOC qualification
- Credit score: 680+ typical minimum; 720+ for best pricing
- CLTV: combined first mortgage + HELOC line typically capped at 80-85%
- DTI: 43-50% back-end including the HELOC payment at fully-drawn worst-case
- Reserves: typically 2-6 months of housing reserves
Why HELOCs matter for LO retention
HELOCs are one of the most common second-loan motions a past client comes back for. A borrower who closed a $400K mortgage 3 years ago, with the home now worth $480K, has roughly $100K of available equity (at 80% CLTV) — a meaningful HELOC opportunity. Equity alerts catch these moments at the threshold crossing, surfacing the conversation before the borrower goes to their bank.
