What to Check Before You Sign a HELOC Agreement

Your house secures the debt, so read the agreement closely. This checklist covers rates, draw periods, fees, freezes and the federal right to cancel before you commit.

A home equity line of credit lets you borrow against your home again and again, up to a set limit. Because your house secures the debt, work through this checklist before you sign and get every answer in writing.

Careful

A HELOC uses your home as collateral. If you cannot repay, the lender can foreclose, so borrow only what you are confident you can pay back.

Your Credit Limit and How Much You Can Draw

• Confirm how the lender set your limit. The amount you can borrow depends on your income, credit history and your home’s market value, and lenders typically allow borrowing up to 85 percent of your home’s value minus what you owe.
• Check for minimum draw rules. Some plans require a set minimum each time you draw, such as $300, a minimum outstanding balance, or an initial advance when the line opens.
• Ask how you will access the funds. Most plans let you draw by check, a connected credit card, or an online withdrawal.
• Remember it stacks on your first mortgage. If you already have a mortgage, the HELOC is a second mortgage you pay alongside your regular payment.

Variable Rates: the Index, the Margin and Caps

• Confirm the rate is variable. Most HELOCs carry a variable rate, so your rate and payment can change from month to month as your balance and the index move.
• Identify the index. A variable HELOC rate is an index plus a margin. Many lenders use the U.S. Prime Rate as published in The Wall Street Journal, and the rate moves with it.
• Identify the margin. The margin is the amount added to the index, it stays constant for the life of the line and is disclosed at application, and margins vary by lender.
• Ask about rate caps. Variable-rate plans may limit how far the rate can climb. Adjustable-rate mortgages use an annual cap limiting each year’s change and a lifetime cap setting a maximum, so ask which limits apply to yours.
• Ask about a fixed-rate option. Some HELOCs let you convert part or all of your balance to a fixed rate, which is usually higher than the variable rate but more predictable.

The Draw Period and the Repayment Period

• Confirm the length of each period. Many HELOCs have a draw period of about 10 years for borrowing, followed by a repayment period often set at 10 or 20 years.
• Check what you owe while drawing. You can make payments during the draw period, some plans require only interest on borrowed amounts, and many set minimum monthly payments based on your current balance.
• Ask what happens when repayment begins. You stop borrowing, and monthly payments are often significantly higher once repayment starts. In some plans, the entire balance comes due as soon as the repayment period begins.
• Do the math on the jump. If draw-period payments cover interest only, the switch to principal and interest can raise the bill sharply. Know the estimated new payment before you sign.

Fees, Minimums and Closing Costs

• Get the full fee list in writing. Lenders can charge certain fees when you open a HELOC, and the charges vary from plan to plan. Ask for every fee, not just the ones volunteered.
• Know what the APR leaves out. A HELOC’s APR reflects interest alone and does not include points or other financing charges. Compare total costs across offers, not the APR figure by itself.
• Tally the cost of minimums. A rule requiring $300 draws or a minimum outstanding balance can push you to carry more debt than you planned.

Freezes, Reduced Access and Early Payoff Demands

• Ask what happens if home values fall. If your home’s value drops significantly, the lender might not allow additional draws, leaving you with less access than expected.
• Ask what happens if your finances change. A lender can freeze your ability to take out more funds if your financial circumstances change and it does not believe you can make the payments.
• Check for a balloon demand. Some plans require the whole balance when repayment begins. Ask whether yours does and what your options would be if you cannot pay it then.
• Ask what notice you would get. Understanding the triggers and the notice process in advance helps you avoid surprises.

Your Right to Cancel and Other Protections

• Expect written disclosures. The Truth in Lending Act and its rule, Regulation Z, require written disclosures of the costs and terms of home-secured credit. The Home Equity Loan Consumer Protection Act adds disclosure requirements and limits for open-end plans secured by a dwelling.
• Confirm your cancellation rights. Regulation Z gives borrowers the right to rescind certain home-secured credit transactions. Ask how the right works on your agreement, how long the window lasts and how to submit a cancellation.
• Never sign what you do not understand. The FTC’s advice is blunt: do not sign documents you do not understand, and talk to a lawyer, legal aid or someone you trust first.
• Talk to a counselor if money is already tight. If you are struggling with your current mortgage, a HELOC may not be the answer. A HUD-approved housing counselor can help you weigh other options; our guide to getting started with a HUD-approved housing counselor shows how to find one, and the CFPB can connect you to an agency at (855) 411-CFPB (2372).

Related guides

• HELOC or Home Equity Loan? How They Differ: useful if you want one lump sum at a fixed rate instead of a revolving line.
• Mistakes to Avoid When Comparing Mortgage Offers: helps you compare total costs across lenders without leaning on the monthly payment alone.

Readers also ask

How much can I borrow with a HELOC?
The limit depends on your income, credit history and your home’s market value. Lenders typically allow borrowing up to 85 percent of your home’s value minus what you still owe on it.

What happens when the draw period ends?
You can no longer borrow, and you enter a repayment period, often set at 10 or 20 years. Monthly payments are usually significantly higher, and some plans require the entire balance as soon as repayment begins.

Can my lender freeze my HELOC?
Yes. A lender can block additional draws if your home’s value drops significantly or if your financial circumstances change and the lender does not believe you can make the payments.

Do I have a right to cancel a HELOC?
Federal rules under the Truth in Lending Act and Regulation Z give borrowers the right to rescind certain home-secured credit transactions. Ask your lender how the cancellation window works on your agreement before you sign.

This guide is general information about U.S. mortgages, not financial, tax or legal advice. Loan terms depend on the lender and on your credit, income and property, so confirm the details with your lender, and see consumerfinance.gov for official guidance.