Can You Get Cash from a HELOC and Is It Right for You

A HELOC, or Home Equity Line of Credit, can be a tempting way to tap into your home's equity for cash. You can borrow up to 80% of your home's value, minus any outstanding mortgage balance.

However, borrowing against your home's equity comes with risks, such as losing your home to foreclosure if you're unable to repay the loan. This is especially concerning if you're not careful with your finances.

You can get cash from a HELOC in a lump sum or through a series of draws, which can be convenient for large expenses or ongoing needs.

Your home's equity can be a powerful tool for accessing cash when you need it. You can use a Home Equity Line of Credit (HELOC) to tap into that equity and get the funds you require.

A HELOC can provide you with a significant amount of cash, up to 80% of your home's value, minus the outstanding mortgage balance. This can be a huge help in times of financial need.

Having a HELOC can also give you the flexibility to use the cash as needed, rather than having to take out a large loan all at once. This can be especially useful for covering unexpected expenses or financing a big project.

The benefits of using a HELOC to get cash from your home's equity are numerous, and they can have a significant impact on your financial situation.

To get a HELOC, you'll need at least 15% – 20% equity built up in your home, which will be determined by an independent appraisal.

You'll also need a debt-to-income (DTI) ratio between 43% and 50%, which lenders will calculate by dividing your monthly debt obligations by your pre-tax or gross income. Some lenders may not consider monthly expenses like utilities, food, and transportation costs, while others do.

A qualifying credit score and a strong history of paying your bills on time are also required.

To determine the best option for you, consider the three ways to borrow against your home's equity: cash out refinance, HELOC, or home equity loan.

Here are the key differences between these options:

Before you apply for a HELOC, consider your budget and repayment plan. Ask yourself: what are you going to do with the money, and how will you repay your debt?

During the draw period of a HELOC, you can withdraw up to your available credit line until your draw period is over, which is typically 10 years. This is the time when you'll make monthly interest payments to your lender.

You can withdraw the cash as and when you need it, or not use it at all, and you'll only pay interest on the amount you withdraw, not the total amount you've been approved for. If you don't use the money, you don't pay interest.

Once your draw period ends, you'll enter the repayment period, where you'll be required to start paying down both the interest and the principal on the amount you owe, which can last for 10-20 years, depending on your loan terms.

A HELOC is a line of credit guaranteed by the equity in your home, allowing you to borrow up to 80% or 90% of your home's equity.

You can withdraw cash from your home equity line of credit during the draw period, which is typically 10 years.

During this time, you'll only pay interest on the amount you withdraw, not the total amount you've been approved for.

You can withdraw up to your available credit line until your draw period is over, and you'll likely be required to make monthly interest payments to your lender.

Once your draw period ends, you'll enter the repayment period, where you'll pay down both the interest and the principal on the amount you owe.

The repayment period can last anywhere from 10-20 years, depending on your loan terms.

You'll only pay interest on the amount you withdraw during the draw period, but after that, you'll pay a combined principal and interest payment on the amount you drew down.

Interest rates on a HELOC can fluctuate depending on market conditions and may rise over time, as they are typically based on the prime rate.

A HELOC can be a smart option if you need cash over time, allowing you to withdraw funds as needed or not use them at all. You won't pay interest if you don't use the money.

Most lenders offer competitive rates ranging from 2.49% to 21%, depending on creditworthiness. A mortgage banker can help you navigate your options.

Before tapping into your home equity, consider what you'll do with the money. Paying off high-interest loans or investing in your home via upgrades or repairs can be a good use of equity. Borrowing for unnecessary expenses or vacations is usually not a good idea, as you're racking up debt using your home as collateral.

If you prefer equal monthly payments at a fixed rate, a cash-out refinance or home equity loan might be better. HELOCs, on the other hand, are like credit cards, great for unexpected expenses or uncertain needs.

It's essential to have a solid plan to repay your debt. If you tap all your HELOC funding and only pay interest during the draw period, you could end up with a huge amount of debt later on. Foreclosure could be inevitable if you don't have a plan to cover that debt.

Here's a quick comparison of payment schedules:

As the prime rate increases, your payment will increase with it, making it crucial to factor in potential payment increases. Speaking with a qualified lender about your credit history, financial budget, and goals in advance can help mitigate this risk.

You can withdraw money from a Home Equity Line of Credit (HELOC) using various methods, including credit card, check, cash withdrawal from a bank branch, online account transfer, and account transfer request by phone.

Some lenders require you to withdraw a minimum amount of cash upfront, while others don't.

You can withdraw up to your available credit line until your draw period is over, which is typically 10 years.

During this time, you'll likely be required to make monthly interest payments to your lender.

You can withdraw money from a HELOC using the following methods:

Remember to consider the minimum amount required by your lender, if any, before making a withdrawal.

A cash-out refinance might seem like a good option, but it can be expensive, costing between 2% to 3% of the refinance value in closing fees.

Unlike refinancing, HELOCs don't affect your mortgage, so you can keep your low-interest rate and still get cash from your home.

HELOCs tend to have lower closing costs than cash-out refinances, and the interest rates on a HELOC are lower than average credit card rates.

The starting interest rate on a 20-year HELOC is 5.14% as of April 6, which is considerably lower than the average interest rates on credit cards, ranging between 16% and 24% depending on your creditworthiness.

Repayment strategies are key when deciding between a HELOC and a home equity loan, as the variable rates on a HELOC float with the market and can be unique and situational.

A home equity loan, on the other hand, commits you to a large amount of cash, with fixed payments over 20 years or more.

Repayment strategies are key when deciding between a HELOC and a home equity loan. The HELOC can be beneficial for people who don't necessarily need a big lump sum, but want cash available when they need it.

Interest rates on HELOCs are increasing, with a 20-year HELOC starting at 5.14% as of April 6. This is still lower than the average interest rates on credit cards, which range from 16% to 24% depending on your creditworthiness.

Repayments for HELOCs can be situational and unique, floating with the market as it changes. It's best to pay them down as quickly as possible if you have the opportunity to, especially given the collateral on the line.

A home equity loan commits you to a large amount of cash, with fixed payments over 20 years or more. This can be a good option if you need a big lump sum, but be aware that you'll be committed to making those payments.

Closing costs for HELOCs are generally lower than for cash-out refinances, which can cost anywhere from 2% to 3% of the refinance value.