California HELOC: home equity line of credit

Why a HELOC makes sense in California right now

Most California homeowners who bought or refinanced between 2019 and 2022 have a first mortgage somewhere between 2.5% and 4%. Home values have climbed since, so many of those homes now carry several hundred thousand dollars of equity. The problem is getting at it. A cash-out refinance pays off that low-rate loan and replaces the entire balance at today’s rate. On a $450,000 balance, moving from 3.25% to the mid-6s raises the interest alone by about $1,170 a month, before you have spent a dollar of the cash.

A home equity line of credit avoids that trade. It sits behind your first mortgage as a separate loan, so the first stays exactly as it is. You pay the HELOC rate only on what you draw, and only for as long as you carry it.

How much you can borrow

Lenders cap the first mortgage and the line together at a percentage of the home’s value, called the combined loan-to-value or CLTV. Our programs go up to 90% CLTV on a primary home. On a $900,000 home with $450,000 owed, that works out to:

$900,000 × 90% = $810,000, minus $450,000 owed = a line of up to $360,000.

Lines run from $50,000 to $800,000. Second homes and investment properties qualify at lower CLTVs.

What a HELOC costs

HELOC rates are variable. They follow the prime rate plus a margin that is set by your credit score, CLTV, line size and occupancy. Today our lines start at 7.49% APR. Closing costs are far lower than a refinance, and on many lines the lender covers most of them. When it does, those costs can be charged back if you close the line within the first few years, so ask about any early-closure fee. You will see every fee in your disclosures before you commit.

During the 10-year draw period you can borrow, repay and borrow again, and the minimum payment is usually interest only. After that the line converts to a 20-year repayment schedule.

What people use a line for

• Remodels and ADUs. Draw in stages as your contractor bills, so you only pay interest on work that is done.
• Paying off high-rate debt. Credit cards at 22% and personal loans at 12% roll into a single line at a fraction of the rate.
• A down payment on the next property. Buy before you sell, or buy a rental, without liquidating investments.
• Tuition, medical bills or a business. A standing line you can tap when the bill arrives, and leave at zero when it does not.

Who qualifies

Our best pricing goes to borrowers with a credit score around 680 or higher, a CLTV within program limits and a debt-to-income ratio in a normal range. W-2 employees qualify with pay stubs and W-2s. Self-employed borrowers can use a bank statement HELOC instead of tax returns. If a revolving line is not the right fit, a closed-end second mortgage gives you one fixed-rate lump sum instead.