Beginner's Guide to HELOCs
07/30/2025
Beginner’s Guide to HELOCs
A few weeks ago, we posted a beginner’s guide to home loans; now let’s talk about HELOCs or Home Equity Lines of Credit. Unlike home loans, HELOCs are taken out after you already own a home. While some things are like a home mortgage (like interest rate, APR, et cetera), HELOCs function much differently.
First and foremost, “a home equity line of credit (HELOC) is a loan that allows you to borrow, spend, and repay as you go, using your home as collateral” (Consumerfinance.gov). The amount you can borrow is based on the equity in your home. Equity is the assessed value of your home minus the amount you owe on any mortgage or other loans where the property is collateral. It is important to understand with HELOCs that if you fall behind on your payments, the bank could take your home. If you don’t believe a HELOC is right for you, but are still looking for some financing, you could consider options where your house is not used as collateral, like a personal line of credit.
How do HELOCs work?
Before getting approved for a HELOC, the lender will usually require a few things. One will be a property appraisal, for which the borrower is responsible for the cost. The borrower will also need to fill out an application form for the lender (some lenders will charge an application fee which may or may not be refundable). Like any other loan, the lender will then assess the information in this paperwork and offer the borrower a loan amount, terms, et cetera. If approved, the borrower will then close on the loan, like a mortgage.
After closing, the borrower can generally spend up to their credit limit whenever they want. Usually, the borrower uses special checks or a credit card to draw from their line. Depending upon the agreed terms, the borrower might have draw minimums. Repayment will also vary drastically depending on the terms. If you have a variable interest rate (most common) your monthly payment may go up even if you do not draw more money. Some HELOCs will require you to pay off a portion of the principle, while others may let you only pay the accrued interest. Make sure you fully understand the repayment terms before accepting the loan. Lenders are required to disclose the
- Annual Percentage Rate (APR)
- Information about variable rates
- Payment terms
- Requirements on transactions (such as minimum draw amounts and number of draws allowed)
- Annual fees
- Any miscellaneous charges
to borrowers (Consumerfinance.gov). Borrowers also have a federally protected right to cancel, meaning if they wish to cancel the loan, they must notify the lender in writing within the first three days after the account is opened that they wish to cancel the credit line. The lender must cancel the loan and return the fees paid.
What can I use a HELOC for?
HELOCs can be used for a variety of things, and they do not always have to be related to your home. Most commonly, people take out HELOCs to make home improvements or repairs. Things like remodeling a kitchen or bathroom, replacing a roof, or building an addition are excellent choices to use a HELOC for and may even improve the value of your home! Other ways to use a HELOC include paying education expenses, debt consolidation, emergencies, or real estate investment. Whatever you choose to use your HELOC for, just remember that your house is collateral.
The Savings Bank is currently running a HELOC special! To learn more, call us at 1-800-582-2265 or visit us online at TheSavingsBankOhio.bank today. One of our loan experts will be happy to help you unlock your home’s potential!
LOANS SUBJECT TO CREDIT APPROVAL
Sources:
https://files.consumerfinance.gov/f/documents/cfpb_heloc-brochure_print.pdf
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