Isn't That Rich Podcast

If you've been eyeing a kitchen upgrade, dreading a big tuition bill, or just want to stop throwing money at high interest credit card balances, it's time to get familiar with a tool more homeowners should know about: a HELOC.

We sat down with Taylor Abney, mortgage lender and home loan expert, to break down how a Home Equity Line of Credit (HELOC) works, why it might be a better option than a traditional loan, and how to use it wisely.

Let’s walk through what a HELOC really is and what you need to know before tapping into your home’s equity.

What Is a HELOC?

A HELOC, or Home Equity Line of Credit, allows you to borrow money based on the equity you've built up in your home. It’s a revolving line of credit, which means you can use it, pay it down, and then use it again. It functions similarly to a credit card but is secured by your home and typically offers a much lower interest rate.

The draw period typically lasts 10 years. During that time, you can borrow what you need when you need it, and you only make monthly payments on the interest of what you've borrowed.

That’s important. The monthly payment is interest only. If you want to reduce your balance, you’ll need to pay more than the minimum. Otherwise, your principal won’t go down, and you’ll still owe the full amount when the repayment period ends.

What About My Current Mortgage Rate?

If you’ve got a great interest rate on your current mortgage, you’re not alone. Many homeowners locked in historically low rates and want to hang onto them.

Here’s the good news. A HELOC does not touch your existing mortgage. It is a completely separate loan. That means your low interest rate stays right where it is.

This is one of the biggest reasons homeowners choose a HELOC over refinancing. You keep your first mortgage intact and add a second loan behind it, using your equity as collateral without starting over.

Why Use a HELOC?

People use HELOCs for all sorts of reasons. Here are some common ones Taylor sees:

• Home upgrades like new roofs, siding, kitchen renovations, or landscaping

• Consolidating high interest credit card debt into one lower interest payment

• Tuition payments for college or private schools

• Bridge financing to buy a new home before selling your current one

• Emergency cushion just in case something unexpected comes up

One of the best features is the flexibility. You don’t have to take out the full amount right away. If you're approved for a $30,000 HELOC, you can borrow just $5,000 to start, pay it back, and then borrow again later.

HELOC vs. Cash Out Refinance

Both let you borrow against your home’s equity, but they’re not the same.

With a cash out refinance, you get a lump sum and a new mortgage. That often means losing your current mortgage rate and replacing it with today’s higher rate, something many homeowners want to avoid.

With a HELOC, your existing mortgage is untouched, and you only borrow what you need when you need it. You can leave the credit line sitting there unused and pay nothing until you borrow.

Watch the Interest Rates

HELOCs typically have variable interest rates that follow the prime rate. That means the rate and your monthly payment can change from month to month.

Taylor shared that some borrowers opened their HELOC at 4 percent and now find themselves paying closer to 7 percent or more. If that happens and the monthly payments become difficult to manage, many people choose to term out the balance. That means refinancing it into a fixed rate loan with regular principal and interest payments.

That switch gives borrowers more predictable payments and a structured path to pay off their balance.

Avoid the Pitfalls: Use It Wisely

Because HELOCs only require interest payments during the draw period, it can be tempting to treat it like free money. But just like credit cards, if you only pay the minimum, you’ll never reduce the principal, and that can lead to a balloon payment down the road when the draw period ends.

Taylor recommends setting a realistic budget and paying down your balance as you go. If you're using it for debt consolidation, take what you were previously paying on credit cards and apply that to your HELOC payment to chip away at the balance faster.

What Do You Need to Qualify?

To qualify for a HELOC, lenders look at:

• The equity in your home. You can typically borrow up to 90 percent of your home’s value minus what you owe on your mortgage

• Your credit score

• Your debt to income ratio, ideally 40 percent or lower

• A recent home appraisal

If you had a mortgage within the past year or two, a new appraisal might not even be needed. In many cases, you can get a HELOC in as little as two weeks, especially if you’re borrowing under $50,000.

Can a HELOC Boost Your Home’s Value?

Absolutely. Taylor sees many homeowners using HELOCs to fund upgrades that boost their home’s resale value. Updates like new kitchens, bathrooms, floors, or roofs not only improve your living space but also help your home sell faster and at a higher price.

Some homeowners take out a HELOC to renovate, then sell their house and use the proceeds to pay it off. It’s a smart strategy, especially in a competitive market where move-in ready homes are in high demand.

Final Thoughts

A HELOC can be a powerful tool if used wisely. It’s not about taking on debt just because you can. It’s about using your home’s equity strategically to improve your life, whether that means upgrading your home, consolidating debt, or planning for your next big move.

Your original mortgage stays untouched. Your monthly payments only cover interest unless you choose to pay more. Go in with a plan, and this flexible option can be one of the smartest financial decisions you make.

If you're curious whether a HELOC is right for you, reach out to one of our experienced lenders to explore your options. There’s no pressure to commit, just a friendly conversation to help you decide what makes the most sense for your situation.