HELOCs: Tap Equity Without Losing Your Low Rate
A lot of homeowners are sitting on two things at the same time: substantial home equity and a first mortgage with an interest rate they really do not want to give up.
So what happens when you need access to some of that equity for a home improvement, a pool, debt consolidation, or another major expense?
In this Real Estate Tip Tuesday episode, Katie Halle Lambert, Associate Broker with Team EvoAZ at eXp Realty, and Ryan Gilliam with Your Best Mortgage discuss how a HELOC in Arizona can give some homeowners another way to access their equity without replacing their existing first mortgage.
What Is a HELOC?
HELOC stands for home equity line of credit.
Ryan describes it as similar to a line of credit or credit card that is secured by your home. If you already have a first mortgage, the HELOC generally sits behind that mortgage as a second lien.
That distinction can matter for homeowners who locked in a lower mortgage rate years ago.
Instead of refinancing the entire existing mortgage, a HELOC may allow a homeowner to leave the first mortgage in place and borrow only against the additional equity they want to access.
HELOC vs. Cash-Out Refinance
One of the biggest differences between a HELOC and a cash-out refinance is what happens to your existing mortgage.
With a cash-out refinance, the existing first mortgage is replaced with a new mortgage. The homeowner receives additional cash by taking out a larger new loan.
With a HELOC, the existing first mortgage can remain in place while the homeowner accesses a separate line of credit based on available equity.
Ryan gave a simple example during the episode.
Imagine a homeowner owes $300,000 on a home worth $700,000 and has a first mortgage rate around 3.25%. If that homeowner wants $50,000 for a major expense, refinancing the entire mortgage simply to access that $50,000 could mean giving up the existing low rate.
A HELOC provides another option: keep the existing first mortgage and finance only the equity the homeowner wants to access.
Why More Homeowners Are Asking About HELOCs
Katie and Ryan have both noticed an increase in conversations about home equity lines of credit.
Katie shared the example of a client who wanted to use some of her home's equity to build a pool but had no interest in giving up the approximately 2% rate on her existing first mortgage.
That is the situation many homeowners are trying to navigate.
They may have owned their homes for years, built significant equity, and secured mortgage rates that they would prefer to keep. At the same time, they may want access to a portion of the money tied up in the property.
For those homeowners, the question becomes less about whether they have equity and more about the best way to access it.
Understand the Rate and Payment Structure
A HELOC does not necessarily work like a traditional 30-year fixed mortgage.
Many HELOCs have variable interest rates, which means the interest rate and payment can change over time.
They also commonly include different phases. During the draw period, the homeowner can borrow from the available credit line according to the loan terms. That is followed by a repayment period, when the outstanding balance must be repaid under the lender's requirements.
Because HELOC products can vary, Ryan emphasized the importance of reading the details carefully.
He also noted that some of the lending partners he works with offer fixed-rate options, which may appeal to borrowers who prefer more predictability. The specific rate structure, term, repayment requirements, fees, and eligibility will depend on the lender and loan program.
Should You Get a HELOC or Refinance?
There is not one answer that works for every homeowner.
Ryan explained that when someone comes to him with this question, he starts with a few basic pieces of information:
What is your current mortgage balance?
What is your current interest rate?
What is your current mortgage payment?
How much equity do you want to access?
From there, he can compare different scenarios.
For example, what would it look like to refinance the entire first mortgage and take cash out? What would it look like to leave that mortgage alone and use a HELOC instead? And what rate and payment structures are available for the home equity option?
Putting those scenarios next to each other can help a homeowner better understand the differences before deciding which direction makes sense for their circumstances.
The Strategy Matters
Having equity in your home does not automatically mean there is only one way to access it.
For homeowners with a low-rate first mortgage, replacing the entire loan may have very different financial implications than leaving it in place and adding a home equity line of credit.
That is why Katie and Ryan recommend looking at the numbers and understanding the loan terms before making a decision.
If you're considering accessing equity in your Arizona home and want to talk through your options, you can connect with both the real estate and lending sides of the conversation.
Prefer to Watch Instead?
Want to hear Katie and Ryan explain why HELOCs are getting more attention and what homeowners should understand before tapping into their equity?
Check out this Real Estate Tip Tuesday episode on the Team EvoAZ YouTube channel or find Arizona Real Estate Radio on your favorite podcast platform.
Have Questions About Buying or Selling a Home?
Team EvoAZ can help you navigate the real estate side of your purchase and understand the documents and deadlines that come with an Arizona home transaction.
Katie Halle Lambert | Team EvoAZ
Text ConnectWithKatie to 480-508-9828
Have Questions About Your Mortgage?
Whether you're purchasing your first home, refinancing, or simply have questions about your financing options, Ryan is here to help.
Ryan Gilliam | Your Best Mortgage
Text ConnectWithRyan to 480-508-9828
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Looking for homes in the Phoenix area? Text GetPhoenixDeals to 480-508-9828 to browse current listings and great opportunities.
〰️ Looking for homes in the Phoenix area? Text GetPhoenixDeals to 480-508-9828 to browse current listings and great opportunities.
Disclaimer: This video is prerecorded. This information is for educational purposes only and is not financial or legal advice. HELOC rates, terms, repayment structures, qualification requirements, and available loan products vary by lender and borrower. Consult a licensed lender or other qualified professional for guidance specific to your situation.
