What is a HELOC?

Offering both Standalone and Piggyback HELOCs (Home Equity Lines of Credit) can be a valuable tool for providing borrowers with greater flexibility and maximizing the equity in their home. These products are also a smart way for mortgage professionals to serve a wider range of client needs — from cash flow management to purchase structuring. With Swardstrom Mortgage, we have access to dozens of Nationally Ranked Lenders who provide Industry Leading Rates, and Structures that fit our clients specific needs.

What Is a HELOC?

A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by the borrower's property. It functions similarly to a credit card — borrowers can draw funds as needed, up to a pre-approved limit, and only pay interest on the amount currently in use. Most HELOC's have an Interest Only Payment Period of 10 years, as well as a "Draw Period" in which the borrower can pull funds as well as put back for a set amount of time. This Draw Period is most often a 3-5 year period.

What Is a Standalone HELOC?

A Standalone HELOC is tied to a property that already has an existing mortgage.

• It allows homeowners to access equity without modifying their current first mortgage.

• The HELOC does not have to be with the same lender as the original mortgage.

• Commonly used for home improvements, debt consolidation, or cash-out purposes.

What Is a Piggyback HELOC?

A Piggyback HELOC — also known as a simultaneous close HELOC or a second mortgage — is originated at the same time as a first mortgage on the same property.

• Commonly used in purchase transactions to avoid mortgage insurance or jumbo loan limits.

• Structures like 80/10/10 or 80/15/5 allow borrowers to keep the first mortgage under 80% LTV and finance the remainder with a second lien.

• Helps buyers reduce out-of-pocket costs while preserving future flexibility.

Why Offer HELOCs?

Including HELOCs in your product lineup allows you to:

• Help borrowers leverage equity without refinancing a low-rate first mortgage

• Structure creative solutions for purchases or cash-out needs

• Offer interest-only payment options to support cash flow

• Compete more effectively in today's rate-sensitive market

  
  
  
  

  Cautions to Consider with a HELOC

  While HELOCs offer flexibility and short-term advantages, they also come with some important risks:

  • Variable Interest Rates: Most HELOCs have adjustable rates, which can increase over time and lead to higher monthly payments.

  • Interest-Only Periods: Many HELOCs begin with an interest-only repayment period (typically 5–10 years). Once that ends, payments increase significantly as principal begins to amortize.

  • Balloon Payments or Payment Shock: Borrowers may face large increases in monthly obligations when the interest-only period ends.

  • Secured by Your Home: A HELOC is a lien on your property — missing payments can result in foreclosure, just like with a traditional mortgage.

  • Overborrowing Risk: The ease of access can tempt borrowers to overuse funds, increasing long-term debt without a clear payoff plan.

  It’s essential to assess your short- and long-term financial goals before choosing a HELOC structure.