Can I keep my low first-mortgage rate and still use my equity?
A HELOC is one way to do it. The line is a second loan, so your first mortgage and its rate stay as they are. A cash-out refinance would replace that mortgage with a new, larger one at a new rate. The line has its own rate; on the line we arrange, each draw is fixed for its full term.
Key facts
| Your first mortgage with a HELOC | Stays as it is, with its rate source |
|---|---|
| Your first mortgage with a cash-out refinance | Replaced by a new, larger mortgage source |
| Rate on a HELOC draw | On the line we arrange, fixed for the full term of that draw source |
| Your home | Is the collateral for the line source |
You may have a mortgage with a rate you like. You may also want to use the equity in your home for a project or a large cost. The question is how to do that without giving up the rate.
What happens to my mortgage with a HELOC?
It stays as it is. A HELOC is a second loan behind your first mortgage. Your mortgage keeps its rate, its term, and its payment. You add a second payment for the line.
Why not refinance?
A cash-out refinance pays off your mortgage and replaces it with a new, larger one. The new loan has a new rate. The CFPB notes that this rate may be higher than the rate on your current mortgage. It may also take longer to pay off your mortgage.
For the full side-by-side, see HELOC vs cash-out refinance.
What rate does the line have?
The line has its own rate, separate from your mortgage. On the line we arrange, the rate on each draw is fixed for the full term of that draw. You get the terms in writing before you sign.
What should I weigh?
- Two payments. You keep paying your mortgage and add a payment for the line.
- Your home is the collateral. If you cannot repay the line, you could lose your home.
- All loans together. Lenders look at your mortgage and the new line against your home's value. In Texas, all loans together cannot go above 80 percent of the home's fair market value; see Texas HELOC rules.
- How long you plan to stay. If you may sell soon, keep in mind the line often must be repaid when you sell.
Is a home equity loan another option?
Yes, in general. A home equity loan also leaves your first mortgage in place. It pays one lump sum instead of a line. See HELOC vs home equity loan.
Who does what?
Click Mortgage arranges the line and is not the lender. A licensed lender funds it. Your pre-approval decision comes by text and email; no one calls you.
Questions people ask
Will a HELOC change my mortgage rate?
No. The line is a separate loan. Your first mortgage and its rate stay as they are.
Can I do this on a rental or a second home?
Sometimes. A main home is the simplest case. Second homes and rentals face tougher requirements, and in Texas they are not eligible.
Does checking my options affect my credit score?
No. The first check is a soft inquiry. A hard inquiry may follow at the application stage with the lender.
- Sources
- https://www.consumerfinance.gov/rules-policy/regulations/1026/40/
- https://files.consumerfinance.gov/f/documents/cfpb_heloc-brochure.pdf
- https://www.consumerfinance.gov/rules-policy/regulations/1026/16/
- https://www.consumerfinance.gov/ask-cfpb/what-is-a-home-equity-line-of-credit-heloc-en-107/
See what a line on your home could be.
A few questions, a soft credit check only, and your pre-approval decision by text and email.
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