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What is a HELOC and how do they work?

Financial Advice


Articles and research about improving your home

HELOCs defined and explained

Financial Advice


Articles and research about improving your home

What is a HELOC?

Published October 12, 2016

Now that home values are incrementally rising again and Americans are gathering more equity in their homes, home equity lines of credit (HELOCs) are once again emerging as convenient funding tools.

HELOCs’ claims to fame include their flexibility and convenience, their comparatively low (and tax deductible1 - please check with a tax professional) variable interest rates and the fact that the borrower pays interest only on spent portions. The funds can be used for home renovations, college tuition, loan consolidation or a range of other options.

“Rewind a few years, and home equity lines of credit were almost unheard of,” notes Donna Fuscaldo in Investopedia. “But thanks to an improving economy and real estate market, lenders are much more willing to lend, setting the stage for the HELOC market to heat up this year.”

Compared to Q1 of 2015, for example, the number of HELOCs in the U.S. rose 10 percent in Q1 2016 while the dollar value rose 45 percent. Fuscaldo attributes that boost to credit-card-beating rates, pent-up demand for home projects, expectations of rising interest rates and/or uncertainty about the economy, in addition to rising home values. Others say the sellers’ housing market is prompting home renovations instead of moves.

What is a HELOC?

A HELOC is a revolving, variable-interest loan that uses your home equity as collateral in the same fashion as a home equity loan. Once it’s established, you pay only for the amount you withdraw. Those withdrawals are made in $4,000 increments. Amplify enacts a 10-year draw period during which you can regularly pay off your balance without penalty. Any balance not paid by the end of the agreement can be refinanced into another HELOC or subjected to regular installment payments. Some borrowers use a HELOC in lieu of a home equity loan, since the interest is often tax deductible and is typically lower than that of credit cards. Amplify charges no administrative fees for HELOCs, and borrowers often appreciate the opportunity they present to fund expenditures in stages while continually paying down the balance.

Most home equity loans are paid off on schedule as intended, but defaults happen. To avoid the possibility of losing your home, you should have a repayment plan in place in the event you lose your job, make poor investments or encounter a drop in real estate prices.

How do HELOCs Work?

Your application is generally approved within a few days, after which processing and closing takes another 20 or so days. Once you’ve closed, you receive your funds four days later. Here’s how it works:

You settle on the amount of your credit line request after determining your home equity, the difference between how much your house is actually worth (i.e., appraised or market value) and how much you still owe on the related mortgage(s). By Texas law, the maximum HELOC amount is half the market value of your home, assuming your combined loan value doesn’t exceed 80 percent due to a first lien mortgage.

After you complete the short walkthrough form on our website, an Amplify agent contacts you to learn more about your needs then completes your initial application if you’re ready. You will be asked to sign several documents and provide several more confirming your income and debt history. Once the HELOC is approved, the state dictates a period of 12 days before closing and three days after.

How Are HELOCs Different in Texas?

  • Payments to the homeowner are called advances and are paid from the equity in the home.
  • Repayments aren’t required until two months after the initial advance.
  • Any owner named on the HELOC may take out an advance.
  • Repayment must occur at regular intervals of two weeks to a month. Each payment must equal or exceed accrued interest.
  • Lenders can’t charge penalties for early payoff.
  • Only a borrower’s primary home can be collateral.
  • Fees can’t be charged for advances.
  • The principal of the first advance combined with debts on the home can’t exceed 80 percent of its market value. Further advances can’t exceed 50 percent.

Home Equity Loans vs. HELOCs in Texas

With both HELS and HELOCS, the maximum amount you can borrow is determined by compiling 80 percent of the market value of your home, then subtracting all unpaid mortgages. With HELOCS, however, the amount borrowed can’t exceed half of your home’s value.

Borrowers in Texas may only have one HEL or HELOC at a time, and only one is possible in any given year. Changing from a HEL to a HELOC is considered a refinance, and the HEL must be paid off before a HELOC can be issued.

Click here to learn more about the differences between Home Equity Loans and Home Equity Lines of Credit.

Want to Learn More About HELOCs?

Continue reading about the HELOC application process as well as the requirements for applying for a HELOC. You can also get started with your application below, or you can visit our HELOC page to get more product details.

1. Home Equity: APR is Annual Percentage Rate. Loans Subject to approval. Combined Loan-to-Value (CLTV) cannot exceed 80% of your home’s value. Additional terms, conditions, and restrictions may apply. Amplify Membership and Property Insurance required.

HELOC: The home equity line of credit Annual Percentage Rate (APR) is variable and is based on the highest Prime Rate published each month-end in The Wall Street Journal Money Rates Table (the "Index"), plus a margin. The current Index is 3.50%. Maximum APR is 17.90%. This Account has a Draw Period of 10 years, after which you will be required to repay any amounts within a 10-year term. Interest on your HELOC may be tax-deductible – please consult your tax advisor for details. Property Insurance, including flood insurance as needed, is required. Loans Subject to approval. Additional terms, conditions, and restrictions may apply. Amplify Membership required. Consult the CFPB's Home Equity Line of Credit booklet as well as the Early HELOC Disclosure for more information.

Under Texas law, the maximum you can borrow with a HELOC is 50% of the fair market value of your home, as long as the combined loan-to-value does not exceed 80% in cases where there is an existing first lien mortgage on the home. A minimum draw amount of $4000 is required for each advance after the initial $10,000 advance at origination.

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