Home Equity Lines of Credit (HELOCs) Explained

A Home Equity Line of Credit, known as a HELOC, allows you to apply for a line of credit using your home as collateral. This can be useful for a variety of large expenses, from home improvement projects like kitchen remodels to college planning or even weddings.

While you might be able to secure a personal loan, a home equity loan or put these expenses on a credit card, you have other options. Learning more about how a home equity line of credit works and what you can use it for can help you make the right financial decisions to tackle a large project or cope with an unexpected expense.

What Is a Home Equity Line of Credit?

A Home Equity Line of Credit (HELOC) is a type of second mortgage that allows you to borrow against the available equity in your home – the difference between your home’s current market value and the amount you still owe on your mortgage. Instead of borrowing a lump sum all at once, you secure a total line of credit that you can then borrow against as you need to. A home equity line of credit differs from an unsecured credit card in one important way; the HELOC is secured with the equity in your home.

Once approved, you’ll have access to a set credit limit during a designated draw period, typically lasting up to 10 years. During this time, you can use the funds as needed – whether you’re replacing an air conditioner, remodeling a bathroom or covering an unexpected expense – giving you the flexibility to manage large or unplanned costs on your own timeline.

Common Uses for a HELOC:

• Home improvement projects
• College tuition or education costs
• Travel or vacations
• Wedding expenses
• Emergency repairs or natural disaster recovery
• Debt consolidation (credit cards or student loans)

HELOC vs. Home Equity Loan: What's the Difference?

While both options use your home’s equity, they work differently:

• Home Equity Loan: You receive a lump sum upfront and repay it in fixed installments. Ideal for one-time expenses with a known cost.
• HELOC: You borrow as needed over time and only pay interest on what you use. Great for ongoing or variable expenses.
  
  

At Seacoast Bank, we offer Home Equity Lines of Credit (HELOCs) because they provide flexibility and control to manage evolving financial needs. While we don’t offer home equity loans, we’re committed to helping you make informed financial decisions with honest, local guidance.

How Does a HELOC Work?

If you decide a HELOC is right for you, you can apply online now or make an appointment at a branch near you. A loan specialist will work with you to determine if this product is a good match for you. Some factors to take into consideration include your home’s appraised value, the amount of money you owe on your mortgage, your debt-to-income ratio and your credit score. Most lenders allow you to borrow up to 80% of your home’s appraised value (loan to value ratio), minus what you still owe.

Example:

• Appraised Home Value: $350,000
• 80% Loan-to-Value (LTV) ($350,000 x 80%): $280,000
• Current Mortgage Balance: $200,000
• Available HELOC: ($280,000 - $200,000) $80,000

When you are ready to apply, the process is faster than a mortgage and upon approval, you’ll be able to access the credit line your lender has extended. The terms and conditions vary; you may have a minimum or maximum withdrawal to adhere to when you make a purchase.

Interest Rates: Variable vs. Fixed

If interest rates are a concern, consider all of your options before applying. HELOCs typically come with variable interest rates, which means your rate (and monthly payment) can change over time as the market changes. When you withdraw money from your HELOC, you’ll receive monthly bills that include a minimum payment based on the principal and interest. Payments may change based on your balance and fluctuations of the interest rate.

To manage rate fluctuations, some lenders-including Seacoast-may offer a fixed rate HELOC option (also known as a HELOC Carve Out). This allows you to lock in a fixed rate on a portion of your balance, giving you predictable monthly payments. Minimum amounts are required and the initial rate may change based on market conditions.

How Do You Repay a HELOC?

Understanding how repayment works can help you plan ahead and avoid surprises. The draw period is the initial phase of your HELOC—typically around 10 years—when you can borrow funds as needed up to your maximum credit line amount. During this time, you usually only need to make interest payments on the amount you've borrowed, keeping your monthly payments relatively low. You can repay the principal at any time, but it's not required.

Once the draw period ends, your repayment terms will change depending on the type of HELOC you have:

• Traditional HELOCs will require you to repay the full balance (principal + interest) in one lump sum. If you are unable to pay it all at once, you might be able to refinance the remaining balance into a new loan.
• HELOCs with repayment periods automatically convert any balance due to an installment loan. You’ll make regular monthly payment over a set period – usually 10-20 years. There’s typically no penalty for early repayment, so you can pay it off faster if you choose.

It’s important to know your HELOC terms before borrowing allowing you to plan ahead to avoid financial stress.

Advantages & Disadvantages of a Home Equity Line of Credit 

Advantages

One of the primary HELOC advantages is the built-in flexibility; once your credit limit is approved, you can use your HELOC as little or as often as you need to. A few other advantages include:

• Interest-only payments during the initial borrowing period, making this an attractive option for those wary of high monthly payments.
• Long repayment periods ensure that you have all the time you need to pay back your loan.
• Convenience; you can take what you need when you need it without waiting for approval or applying for a new loan.
• Flexibility to use the funds on a variety of projects, wants and needs.
• Peace of mind that you have a line of credit readily available for unexpected emergencies and expenses.

Disadvantages

Like any financial instrument, a HELOC can present some risk to borrowers; it is important to have a complete understanding of the pros and cons before determining if a home equity line of credit is right for you. A few things to consider include:

• A HELOC may be more difficult to qualify for than a credit card; you have to have enough equity in your home to borrow against.
• If you plan on selling your home soon, a HELOC is not your best loan option. You’ll need to pay off the home equity line of credit when you close on the sale.
• Since your home is used to secure the loan, you have to consider it part of your mortgage; if you default, you risk foreclosure, just as you would for your primary mortgage.
• A HELOC can have some additional costs, including closing costs. Check with your financial institution to learn about additional costs.

Is a HELOC Loan Right for You?

A HELOC can be a powerful financial tool when used wisely. It offers flexibility, competitive rates and peace of mind knowing you have access to funds when you need them. But it’s important to understand the risks and ensure it aligns with your financial goals.

Ready to explore your options? If you are interested in a HELOC or would like to learn more, you can apply online now, make an appointment at a Seacoast Bank branch near you or speak with a Seacoast Banker for help in determining the ideal personal lending option to meet your needs.