Home Equity Loans & HELOCs: Step-by-Step Guide & Transcript

[00:00] How does a home equity loan work and when would it actually make sense to use one? Because if you own a home, you could potentially have tens to hundreds of thousands of dollars in equity just sitting there. But accessing that money isn't quite as simple as finding a giant

[00:13] ATM behind the drywall. So in this video, I'm going to explain how home equity loans and HELOCs work, the difference between them, how much you may be able to borrow, and some of the situations where people actually use them. And today's video is sponsored by Achieve Home Loans. We're going

[00:28] to talk more about them throughout the video, but let's start now with the basics. And of course, borrowing against your home comes with real risks. So this is just general education and not personalized financial advice. For starters, to understand how a home equity loan works,

[00:42] we need to understand what exactly home equity actually is. Basically, it's the difference between the home's value and what you still owe on the home, referred to as equity. So let's say your home is worth $400,000 and you still owe $250,000 on the mortgage, you would have roughly

[00:59] $150,000 in equity. Now, that does not mean that there's literally $150,000 sitting in some account out there with your name on it. But lenders may allow you to borrow against a portion of that equity, and that's basically the answer here to how does a home equity loan work. You're taking

[01:15] out a loan that's secured by the equity you've built in your home. You receive access to that money now and then you repay the borrowed money over time according to the terms of the loan. The big thing to understand here is that your home is securing the debt, so this is a lot different

[01:28] from opening an unsecured credit card, for example. It also means that the interest rate for these types of loans is generally lower because the lender is taking on less risk. But it also means that your house is potentially on the line if you don't repay the loan, so it does come with a

[01:43] greater level of responsibility. The next big question here is what's the difference between a home equity loan and a HELOC. Because people use these terms interchangeably all the time, but they're not exactly the same thing. With a traditional home equity loan, you are generally

[01:57] borrowing a specific amount of money up front. So let's say you're approved to borrow $30,000. You receive that money and then you repay that loan over a set period of time. A HELOC or home equity line of credit works more like a revolving credit line. Instead of necessarily borrowing one

[02:13] giant lump sum all up front you have the ability to borrow repay and borrow again during the draw period Now HELOC structures can vary quite a bit depending on the lender Achieve Loans offers a fixed amortizing HELOC

[02:27] In plain English, that means that the rate is designed to be predictable, and then your scheduled payments pay down the loan balance over time. Achieve Loans also doesn't use teaser rates, which often catch people off guard if they don't know what they're actually signing up for.

[02:41] And they offer 10-, 15-, 20-, and 30-year terms, giving borrowers different options depending on their financial goals. We'll talk more about them later, but you can click the top link below in the description if you're ready to learn more about achieved loans.

[02:55] So why would someone want to borrow against their home in the first place? There's a few common scenarios where it makes sense, but also a few uncommon ones too. You can think of it like this. Anything that you might need a low-interest loan or credit line for could be a potential candidate.

[03:09] The first common use case is a major home renovation. Maybe you need a new kitchen or you are finishing your basement. A renovation can get expensive very quickly, and some homeowners look at their existing equity as one potential way to finance these improvements.

[03:24] This is especially true if the project could improve the usefulness or potentially even the value of the home. For example, the national average ROI on a minor kitchen remodel, according to Zillow, is 113%.

[03:36] Of course, there is no guarantee that every dollar that you spend on a remodel adds a dollar or more of value to your home. But this is one of the main use cases. You can enjoy the upgrades and potentially view this as an investment into your home.

[03:49] Now, another big use case here is the things that you weren't planning for. Maybe your HVAC system dies or your roof is in need of replacement. For example, a new roof in 2026 could run you anywhere from $10,000 to $30,000,

[04:02] with premium roofs easily costing $50,000 or more. In situations like that, homeowners may look at their equity as another source of financing instead of automatically putting a large expense like that on a credit card.

[04:15] You're likely able to secure a lower interest rate compared to unsecured debt, and repairs like this are helping to protect the value of what could be your biggest asset. Now, another potential use case is debt consolidation. consolidation. Credit card balances now stand at $1.26 trillion in the United States, and the

[04:32] average credit card interest rate was 23 in August So somebody who carrying balances across several different cards might consider replacing some of that debt with one secured loan or line of credit Not only could this help you with organization by consolidating debt it could also lead to lower interest rates helping you to pay it off faster The average

[04:52] rate for a HELOC is currently 7.3%, which is significantly lower than what you might be paying on a credit card balance today. But there's an extremely important distinction here. You are not making the debt disappear, you are just changing how it's financed. And because a home equity

[05:07] product is secured by your house, you need to take this decision seriously. Part of why interest rates are potentially lower is because your debt goes from being unsecured with nothing backing it to being backed by your house. So guys, the goal should never be, look at all this equity, now what

[05:23] can I buy? Instead, it should be more like, does accessing some of this equity actually improve my financial situation? So that's what people commonly borrow for, but the next question is, how much could you actually borrow? And for that, let's go back to our earlier example. Let's say you have a

[05:38] house worth $400,000, your mortgage is $250,000, so you have about $150,000 in equity. So does that mean that you can just go out and borrow that full $150,000? Well, not necessarily. Having equity and

[05:51] then being able to borrow that exact amount are two different things. How much that you are ultimately able to borrow is going to depend on your lender and your overall financial situation. The lender is going to look at the home, what you owe against it, and whether or not you qualify for additional

[06:06] borrowing. So I would not look at your home equity as one giant pre-approved spending limit. Instead, I would think of it as one factor that determines how much financing may be available. And that brings us to qualification. And unfortunately, there's not some universal credit score out there

[06:21] where every single lender just says, congratulations, here's the money. Instead, requirements can vary. Now, generally, lenders are going to evaluate things like your credit history, income, existing debts, and the value of your home in combination with how much equity you have.

[06:36] So having a lot of equity does not automatically mean that you're going to qualify, but it is a good start. The lender still needs to evaluate your situation. Now there's another reason why home equity products have become interesting to some homeowners, especially in this current

[06:50] interest rate environment, and that is your existing mortgage. Let's say that you already have a mortgage with a rate in terms that you're happy with, and today's interest rates are legitimately scaring you Well you are not alone but maybe you still need access to some additional cash Well one of the options you have available is replacing the existing mortgage through refinancing But that means changing the original mortgage itself and most importantly taking on

[07:15] a new interest rate. A home equity loan or HELOC can sit alongside your existing first mortgage, and that's actually an important feature of an Achieve Loans HELOC. According to Achieve Loans, their HELOC doesn't affect your first mortgage.

[07:29] So you can keep the existing rate in terms of that mortgage while adding the separate HELOC. And that is an important distinction if your existing mortgage is something that you would rather leave alone. In addition, their process does not require an in-person appraisal.

[07:42] But before everybody watching this runs and grabs a calculator and starts trying to figure out their home equity, there's one very important thing that we need to talk about. Your house is the collateral and you are borrowing money that is secured by your house.

[07:55] That means this isn't something that I would treat casually just because the money happens to be available. So I think the better question here isn't, can I borrow against my home? It's more along the lines of, what am I borrowing this money for, and does taking on this debt actually make sense?

[08:10] Simply put, financing a major repair could be very different from deciding to borrow against your home's value because you're suddenly in desperate need of a boat. There are probably easier ways to make questionable financial decisions like that.

[08:23] So if you've looked at your situation and decided that accessing some of your home equity makes sense, Achieve Loans is one option you can take a look at. Their HELOC lets eligible homeowners access equity without changing their existing first mortgage.

[08:36] They offer fixed-rate, predictable, amortizing HELOCs. There are 10-, 15-, 20-, and 30-year term options. There are no teaser rates, and according to Achieve Loans, there is no in-person appraisal required either.

[08:49] Smarter debt starts with Achieve. The idea is to give homeowners another way to access cash for things like major expenses, home projects, or potentially restructuring debt without automatically replacing the mortgage that they already have.

[09:02] If you want to learn more about Achieve Loans and see what options may be available to you, you can check them out using the link in the description. And if you have any questions, you can leave me a comment down below and I'll do my best to answer each one.

[09:14] You can click here to watch this next video I think you might like, and I'll see you next time. you