What is a Home Equity Line of Credit (HELOC)?
A Home Equity Line of Credit lets you borrow against the equity you’ve built in your home, giving you access to funds when you need them most. Unlike a traditional loan with a fixed lump sum, a HELOC is a revolving line of credit similar to a credit card but typically with lower interest rates. This flexibility makes it a smart way for homeowners to manage large expenses or plan ahead for future needs.
What can a HELOC be used for?
A HELOC can be used for almost any purpose. However, because your home is the collateral for the loan, it’s best to use a HELOC for expenses that have a strong financial return or are truly necessary, such as:
Home Renovations
Upgrade your space and boost your home’s value.
Debt Consolidation
Simplify payments and reduce interest costs.
Life Expenses
Cover tuition, medical bills, or unexpected costs with ease.
How does a HELOC Work?
A HELOC loan is structured in two key phases — the draw period and the repayment period.
Draw Period
The draw period of a HELOC is the initial phase. During this time, you can borrow funds as needed up to your approved limit. This is the phase of your HELOC that you can choose to make interest-only payments or pay towards both principal and interest.
Repayment Period
Once the draw period of a HELOC ends, the repayment period begins. You’ll no longer be able to withdraw funds, and you’ll make payments toward both principal and interest until the balance is paid off.
Home Equity Line of Credit Rates & How to Calculate Them
HELOC rates are influenced by a variety of factors, both personal and economic, including market conditions that can affect interest rates and home values.
- Credit Score – Strong credit typically results in lower rates.
- Loan Amount & Equity – The more equity you have, the more favorable your terms may be.
- Market Conditions – Rates adjust based on broader financial markets and the Prime Rate.
Before applying, you can estimate your costs with TowneBank’s home equity loan calculators:
How do I qualify for a HELOC?
There are several factors that go into your approval chances of a HELOC, such as:
Credit Score
A good credit history improves your chances of approval.
Home Equity
You need enough home equity, which is the difference between your home’s value and your remaining mortgage balance.
Income & Debt-to-Income Ratio (DTI)
Evaluation of your ability to repay the line of credit.
Home Equity Loan vs. Home Equity Line of Credit
With a home equity loan, you’ll have a competitive rate and predictable payments, which is great for a major purchase. A home equity line of credit gives you a variable rate and lets you access funds when you need to. Talk to your experienced, local banker to decide if a home equity line of credit or home equity loan fits your needs.
Compare Home Equity & Home Equity Line of Credit Loans
Start Your HELOC Journey with TowneBank!
Whether you’re planning renovations, consolidating debt, or preparing for future expenses, TowneBank is here to guide you through the process. Submit this short form for a banker to contact you to discuss your options.
Subject to credit approval. Property insurance required. TowneBank NMLS# 512138
* The rate is variable and the maximum Annual Percentage Rate (APR) is 16% or as applicable by law. The Prime Rate is a variable rate based on the Prime Rate published from time to time in the Wall Street Journal. Floor rate applies.
^ On new home equity lines of credit, with outstanding credit limits from $20,000 to $250,000, TowneBank pays all closing costs, including a desktop appraisal. For accounts closed within the first 24 months, we will add any closing costs we paid to your outstanding balance as reimbursement. Total closing costs generally range from $525 - $1,750. Please note that a $95 document fee will be collected at closing and is not included in the closing costs paid by the bank.
Normal credit approval criteria apply. Property insurance is required, and flood insurance is required for homes in a flood zone. Available only on owner-occupied or secondary single-family residential real property in cities and counties served by TowneBank offices in Virginia and North Carolina. Not available for purchase money or investment property. We must obtain a valid first or second lien position on the collateral, with all owners signing the documents. Available equity depends on the balance of other loans tied to the property. Exclusions and limitations may apply. Consult your tax advisor regarding interest deductibility.
** The LineLock feature is available to all equity line of credit (“Credit Line”) borrowers in products that are not rate-tiered. Any portion locked in to a Fixed Rate Advance will enjoy the fixed rate established at the time of conversion for the requested duration of the LineLock. Fixed Rate Advances may include credit line draws made in the thirty calendar days prior to a LineLock request. LineLocks are not available during any period when the Credit Line is placed in stop-draw status, and cannot exceed the maturity date of the Credit Line.
Rate Determination. The fixed rate will be determined as follows: the Annual Percentage Rate (APR) for a Fixed Rate Advance will be the highest prime rate published in the Wall Street Journal that is in effect on the date of conversion plus or minus a margin between 0% and 5% added to the value of the index. The maximum APR on a Fixed Rate Advance will never exceed 16% or the maximum allowed by law, whichever is less. Periodically, a special Fixed Rate Advance introductory rate may be offered to apply to any Fixed Rate Advance that meets the criteria for the promotional offer. Such an introductory rate will be based on the above index plus or minus a margin set by the Bank. You should contact a TowneBank branch office for the APR currently in effect.
Complete Election Form. In order to exercise the option to convert to a fixed APR, you must sign and return to us an Equity Line of Credit Conversion Election Form (“Election Form”). The Election Form will set forth the principal amount, fixed APR, term (in months), the number of monthly payments and the amount of each monthly payment applicable to the Fixed Rate Advance.
Minimum Monthly Payments. At the time you exercise the option to convert to a fixed APR, we will determine a minimum monthly payment applicable to that Fixed Rate Advance in equal monthly installments of principal and interest over the term of the Fixed Rate Advance. If you have more than one Fixed Rate Advance outstanding, you will have to make minimum monthly payments with respect to each Fixed Rate Advance. The minimum monthly payments due with respect to Fixed Rate Advances will be in addition to the Minimum Payment due with respect to any balance under your Credit Line subject to a variable APR.
Interest Rate Risk Notification. Each LineLock will receive a fixed APR for a specified term as designated on your signed Election Form. Outstanding Credit Line balances that are not fixed under a LineLock have a variable APR. Due to fluctuating market conditions, it is possible that the variable APR on your Credit Line may be less at certain times than the fixed APR on your LineLock(s). It is possible to convert LineLock advances back to revolving interest-only balances at any time without a fee.