HELOC glossary

Plain definitions of the terms you'll see in HELOC quotes and agreements.

Reviewed by Shawn Way, NMLS #1007298★ 4.9 from 111 reviewsUpdated October 28, 2026

Amortization

Paying a loan down with regular payments of principal and interest so it reaches zero on a set date.

Annual fee

A yearly charge some lenders add to keep a HELOC open, often $0–$100.

APR

Annual percentage rate. On a HELOC it's usually the index (prime) plus your margin, and doesn't include closing costs.

Appraisal

A licensed appraiser's opinion of your home's value. Some HELOCs use an automated valuation instead.

AVM

Automated valuation model: a software estimate of value from sales data, used for many smaller HELOCs.

Balloon payment

A large lump sum due at the end of a loan. Some older HELOCs require one when the draw period ends.

Cash-out refinance

Replacing your mortgage with a larger one and taking the difference in cash.

CLTV

Combined loan-to-value: all loans on the home divided by its value. Most lenders cap it at 80%–85% for a HELOC.

Closing costs

Fees to open a loan: valuation, title, recording, any origination fee and state taxes.

Debt-to-income ratio (DTI)

Monthly debt payments divided by gross monthly income. Many HELOC lenders want it under about 43%.

Draw

Borrowing money from your line, by transfer, check or card depending on the lender.

Draw period

Usually the first 10 years of a HELOC, when you can borrow and minimum payments are often interest only.

Early-closure fee

A charge if you close the line within the first 2–3 years, often to recover waived closing costs.

Equity

Your home's value minus what you owe on it.

Fixed-rate lock

An option to convert part of a HELOC balance to a fixed rate and payment for a set term.

Floor

The lowest rate your HELOC can fall to, written into the agreement.

HECM

Home Equity Conversion Mortgage, the FHA-insured reverse mortgage for homeowners 62 and older.

HELOC

Home equity line of credit: a revolving line secured by your home.

Home equity loan

A fixed-rate lump-sum loan secured by your home, repaid in equal payments.

Index

The benchmark a variable rate follows. For most HELOCs it's the prime rate.

Interest-only payment

A payment covering only interest, so the balance doesn't fall.

Lien

A legal claim on property that secures a debt. A HELOC is usually a second lien behind your mortgage.

Lifetime cap

The highest rate a HELOC can reach, written into the agreement.

Margin

The fixed amount a lender adds to the index to set your rate, based on credit, CLTV and line size.

Minimum draw

The smallest amount you can borrow at one time. Texas requires at least $4,000 per draw.

Prime rate

The benchmark rate banks set at 3 points above the top of the Fed's target range. It's 7.00% as of October 28, 2026.

Repayment period

The years after the draw period, often 20, when the balance is paid off with principal and interest.

Right of rescission

Your federal right to cancel a HELOC on your primary home within 3 business days of signing.

Subordination

An agreement that lets one lien sit ahead of another, needed when you refinance a first mortgage but keep a HELOC.

Title search

A check of public records to confirm ownership and find other liens before closing.

Utilization

How much of your available revolving credit you're using, a major credit-score factor.

More terms

Adverse action notice

The letter a lender must send when it declines an application, giving the main reasons. It tells you what to fix. Been told no?

Combined loan amount

All loans secured by the home added together: the first mortgage plus the HELOC limit (lenders often count the full limit, not the balance).

Conforming loan limit

The largest first mortgage Fannie Mae and Freddie Mac buy, set yearly by county. It applies to first mortgages, not HELOCs.

Deed of trust

The document used in California and many other states to secure a loan with real estate, similar to a mortgage. It's what records your HELOC lien.

DSCR

Debt service coverage ratio: a rental's rent divided by its payment. Used to qualify investment loans. Calculator.

Escrow

A neutral third party that holds documents and money during closing; also the account some lenders use to pay your taxes and insurance.

Force-placed insurance

Insurance a lender buys when your coverage lapses, charged to you, usually at a much higher cost.

Introductory rate

A lower starting rate for a set period, after which the regular rate (index plus margin) applies.

LTV

Loan-to-value: one loan divided by the home's value. CLTV counts all loans on the home.

Non-QM

Loans outside the standard qualified-mortgage rules, such as bank-statement and DSCR loans, for borrowers who don't fit standard guidelines.

Payoff statement

A lender's written statement of exactly what's needed to pay a loan in full on a given date.

Reconveyance

The recorded document that releases a deed of trust after a loan is paid off and the line closed.

Seasoning

How long you've owned a home or held a loan; some lenders require a minimum before lending.

Soft pull

A credit check that doesn't affect your score, used for prequalification and your own checks.

Hard pull

A credit check for an application. It can lower a score by a few points for up to a year.

Trigger terms

Specific loan terms in an ad (such as a payment amount or down payment) that legally require additional disclosures, like the APR.

UCC filing

A public notice of a lender's claim on personal property or fixtures, such as solar panels.

Underwriting

The lender's review of your credit, income, assets and property to decide whether to approve the loan.

Variable rate

A rate that changes with an index, usually prime. Most HELOCs are variable unless you lock.

Confidence score

A measure an automated valuation reports of how reliable its estimate is. Low confidence usually means a lender orders an appraisal.

More in HELOC guides

• What is a HELOC?
• HELOC requirements
• When the draw period ends
• How HELOC interest is calculated
• HELOC pros and cons
• Is a HELOC a bad idea?
• How to get a HELOC
• Does a HELOC show on your credit report?

All HELOC guides →