What is a HELOC?

A home equity line of credit (HELOC) is a mortgage on your home that allows you to access cash based on the value of your home. With a HELOC, you borrow against the equity in your home. Equity is defined as the difference between value of the home and the amount owed on the primary mortgage.  Generally, a HELOC lets you borrow up to 75% of the home’s value minus the amount you owe on your mortgage loan.

Why use a HELOC?

A HELOC is a revolving line of credit that allows you the flexibility to borrow as little or as much as you need up to the credit limit during the “draw period” specified in the loan agreement.  As you repay the loan balance, the funds are available to use again as needed.

Common reasons people choose to take out a HELOC include major home repairs or remodeling projects. Repairs such as a new roof or projects like a kitchen or bathroom remodel can cost thousands of dollars. Accessing the equity in your home can provide the money for expensive repairs and remodeling, which, when completed, might help to increase the value of the home.

Important HELOC considerations

When taking on a HELOC, the home is used as collateral for the loan. The HELOC lender places a lien on the home, and you could lose the home to foreclosure if the borrowed amount is not repaid.

To determine the rate on a HELOC, a lender will start with an index rate such as the Prime Rate and apply a markup, also referred to as a margin. If the index rate goes up or down, the interest rate on your HELOC will also adjust, along with your payment.

When you advance money from your HELOC, you will receive monthly statements showing the activity on the account and the amount of any payment required.

Most HELOCs have a variable interest rate throughout the life of the loan. There are also HELOCs offered with the option to convert all or part of the home equity line of credit to a fixed rate with a fixed term during the draw period.

Applying for a HELOC

The process of applying for a HELOC is similar to applying for a mortgage to buy or refinance a home. You will be required to provide some of the same documentation needed for your mortgage, and you will need a valuation or an appraisal on your home. A lender will look at many of the same factors that were evaluated for your first mortgage, such as credit history and your current credit score.

Make sure to ask your lender about any fees that might be associated with your HELOC.


To learn about home financing options offered by Enterprise Bank click here or call 877-671-2265 to speak with an Enterprise Banker.

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