Home equity loans and HELOCs
Borrowing against equity you already have, as a lump sum or as a line you draw from.
What it is
Both borrow against the equity in your home. A home equity loan hands you a set amount in one lump sum. A HELOC is a line of credit: you draw from it more than once, and paying it down puts the credit back, the way a credit card does. If you already have a mortgage, either one is a second mortgage. The first loan stays where it is and you pay this one on top of it. Tareq and his team do these for Northern Virginia homeowners.
Who it's for
- Homeowners with equity built up and a specific reason to use it
- People deciding between one lump sum and a line they draw on over time
- Owners weighing a second loan against redoing the mortgage they already have
The essentials
It sits on top of your mortgage
If you already have a first mortgage, this is a second one. It doesn't replace the first and it doesn't change its terms. You pay both.
Lump sum or a line
A home equity loan pays out once, as a set amount. A HELOC gives you a limit you can draw from, repay and draw again while the line is open.
A HELOC payment moves
HELOCs usually carry an adjustable rate, so the payment changes with the rate and with what you owe at the time. Ask what the payment looks like after the draw period ends, not only during it.
Your home is the collateral
That is the whole mechanism, and it is the risk. If the loan isn't repaid, the lender can foreclose on the house. Worth sitting with before anyone signs.
Common questions
- Should I take a HELOC or refinance the whole mortgage?
- It depends on the loan you already have, what you need the money for, and what each option costs in full. A HELOC leaves your first mortgage alone. A cash-out refinance replaces it. Neither one is automatically better. Put both in front of you before you choose.
- What can I use the money for?
- Lenders set their own rules, and some ask. The harder question is whether the reason is worth putting your house behind it. If you are borrowing because the mortgage you already have is hard to pay, the CFPB will connect you to a HUD-approved housing counselor first. Take that call.
Source: CFPB, home equity loan compared with a HELOC. Current program documents and the borrower's final disclosures control.
The CFPB page above covers the mechanics: lump sum against a line you draw from, credit that comes back as you repay, both counting as second mortgages you pay on top of your first, and adjustable rates that move the payment as the balance moves. It is worth reading before you decide anything. The part it does not spell out is what securing a loan on your home actually means if you cannot repay it, which is that the lender can foreclose.
This page is general information about loan programs, not a commitment to lend or an offer of credit. Program availability, terms, and qualification depend on your situation and are subject to underwriting approval. Tareq Maayta, NMLS #1443073. Loans through Finance USA Corporation, NMLS #135625. Equal Housing Opportunity.