HELOC Loans in North Carolina and South Carolina

A HELOC is approved for a maximum credit limit. During the draw period, you can borrow what you need, pay it down and borrow again, much like a credit card secured by your home. You pay interest only on the balance you've used. After the draw period ends, you can no longer borrow, and the balance is repaid with principal and interest.

Lenders start with your home's current value, multiply it by the maximum combined loan-to-value they allow, then subtract your current mortgage balance. What's left is the most you could borrow. Your credit, income and debt-to-income ratio can lower that amount, and the appraisal or valuation decides the final number. See your estimated equity with my free home equity report.

Most HELOC rates are variable, usually set at the prime rate plus a margin. When the prime rate changes, your rate and payment can change too. Ask about the margin, how often the rate adjusts, any rate caps and whether you can fix part of the balance. Also ask what your payment would be at the maximum rate.

Many HELOCs allow interest-only payments during the draw period. When repayment starts, you begin paying principal too, so the payment can rise significantly even if the rate doesn't change. Plan for that payment before you borrow.

• HELOC: a revolving line, usually variable rate, and your first mortgage stays in place.

• Home equity loan: one lump sum with a fixed rate and payment, as a second mortgage.

• Cash-out refinance: replaces your current mortgage with a new, larger one, with one payment, but your rate changes on the whole balance.

The right choice depends on your current rate, how much you need, how you'll use it and how fast you'll pay it back. See HELOC vs. cash-out refinance and comparing refinance options in Charlotte.

Some move-up buyers open a HELOC on their current home and use it toward the down payment on the next one, then pay it off when the first home sells. Timing matters: many lenders won't open a HELOC on a home that's already listed for sale, and the HELOC payment usually counts in your debt-to-income ratio for the new loan. See can I buy a house before selling mine.

A HELOC can work well for projects paid in stages, since you only draw (and pay interest on) what you've spent so far. Get contractor bids first, and leave room in the budget for surprises. If the home needs major work before you buy it, a renovation loan may fit better.

Fewer lenders offer HELOCs on rentals and second homes, and those that do usually allow less of the equity and charge more. A cash-out refinance or a DSCR cash-out refinance may be worth comparing. See DSCR loans and what down payment is needed for investment property.

Depending on the lender, costs can include an appraisal or automated valuation, a credit report, title search and recording fees, and sometimes an annual fee, inactivity fee or a fee if you close the line early. Some lenders cover part of the closing costs. Compare the full cost, not just the starting rate.

For a HELOC on your primary residence, federal rules give you three business days after closing to cancel. Funds aren't available until that period ends, so plan your timing if you need the money by a certain date.

Interest on a HELOC may be tax-deductible in some cases, generally when the money is used to buy, build or substantially improve the home that secures the loan. Tax rules depend on your situation, so check with your tax professional. See IRS Publication 936.

HELOC lenders differ in how much of your equity they allow, their rate margins, fixed-rate options, fees, draw and repayment terms, and property types. I compare HELOC options available through my lenders alongside a home equity loan and a cash-out refinance, so you can see the real trade-offs.