Is a HELOC right for you? 7 questions to ask yourself
You bought a home, you make your payments on time, and your equity has been growing. That’s good news. If your financial goals have changed, that growing equity could help you do more, whether it’s tackling home upgrades, consolidating debt, or covering major expenses.
A home equity line of credit, or HELOC, could be a smart way to tap into your home’s value while keeping flexibility. Before deciding if it’s right for you, start by asking these seven questions.
1. What Is Home Equity?
Home equity is the portion of your home that you truly own. It’s the difference between your home’s market value and what you still owe on your mortgage.
For example, if your home is worth $500,000 and you owe $350,000, you have $150,000 in equity. That number changes over time as you pay down your loan or as home values rise.
Building equity is like building savings that you can potentially access later through a HELOC or a cash-out refinance.
2. What Is a HELOC?
A HELOC (home equity line of credit) works a bit like a credit card. It gives you a revolving credit line based on your home’s value, so you can borrow what you need, when you need it, and only pay interest on what you use.
Because your home serves as collateral, HELOCs often come with lower interest rates than personal loans or credit cards. You can use the funds for home improvements, debt consolidation, education costs, or other major expenses.
3. Do I Have Enough Equity to Qualify?
Most lenders want you to have at least 20% equity in your home to qualify. You can estimate your equity with a quick calculation:
- Get an estimate of your home's current market value (fill out the form below if you need help with that)
- Check your most recent mortgage statement for your current loan balance.
- Subtract what you owe from your home’s value.
If your equity equals at least 20% of your home’s value, you may be in a good position to explore your options.
4. What Do I Need to Apply?
Applying for a HELOC is similar to applying for a mortgage. You’ll likely need:
- Proof of identity and residency
- Recent pay stubs, W-2s, or tax returns
- Recent bank and investment account statements
- Mortgage documents for your current home
Having this ready can help speed up the process.
5. What Interest Rate Can I Expect?
HELOC rates are typically variable, meaning they can change with market conditions. Some lenders offer a fixed-rate option that lets you lock in a portion of your balance for predictable payments.
It’s also worth checking if the interest on your HELOC could be tax deductible. If you’re using the funds for home improvements, you may qualify, but check with your tax professional to confirm.
6. Are There Upfront Costs or Fees?
HELOCs can include setup fees, appraisal costs, or closing costs, though many lenders reduce or roll these into your balance. Be sure to ask about:
- Application or origination fees
- Appraisal or title search fees
- Annual maintenance charges
Knowing the total costs up front will help you decide if the flexibility of a HELOC is worth it.
7. How Much Can I Borrow?
The amount you can borrow depends on your home’s value, your credit score, and your existing mortgage balance. Many lenders allow you to borrow up to 85% of your home’s value minus what you owe.
So if your home is worth $500,000 and your mortgage balance is $350,000, you could potentially access up to $75,000 through a HELOC.
Keep in mind that using a HELOC increases your total debt, so it’s important to borrow strategically and make payments on time.
Ready to See What’s Possible?
Your home’s equity is a powerful resource. A HELOC can help you reach goals like paying off debt, investing in upgrades, or building a financial cushion for the future.
If you want to find out how much equity you could access or what a HELOC might look like for you, connect with a Movement Mortgage loan officer today. They can walk you through your numbers and help you make the most of what you’ve built.
