As long as you have enough proceeds from the sale to cover the balance of both the mortgage and HELOC, yes.
Assuming a borrower who has spent up to their HELOC credit limit, the monthly payment on a $50,000 HELOC at today's rates would be about $372 for an interest-only payment, or $448 for a principle-and-interest payment.
Key Takeaways
A home equity loan allows you to use the equity that you've built in your home as collateral to borrow a lump sum of cash. The loan is secured by the property in the form of a lien, meaning that the lender has permission to foreclose on your home if you fail to keep up with repayments.
Can you sell your house if you have a home equity loan? You don't have to pay off your home equity loan or other liens to list your home for sale. At the sale's closing, creditors holding liens on your home's title will be paid off from the proceeds of the sale.
When we buy a house, we like to think that it's ours, but the reality is that we share ownership with the bank until the mortgage is paid off. At the time of the sale of your house, after paying off the loan and subtracting other selling costs, the remaining figure is your equity.
You can change your mind for any reason. You just have to inform the lender in writing within the three-day period that you have changed your mind. The lender must then return all of the fees, including any fees to third parties, that you paid to open your HELOC.
One of the biggest risks of a HELOC is that your home serves as collateral. If you miss payments, you could face foreclosure. Defaulting on a HELOC is not like defaulting on a credit card. With a credit card, you might get hit with late fees and a lower credit score, but with a HELOC, you could lose your home.
Using a HELOC to fund a vacation, buy a car, pay off credit card debt, pay for college, or invest in real estate is not a good idea.
Consider a HELOC if you are confident you can keep up with the loan payments. If you fall behind or can't repay the loan on schedule, you could lose your home.
HELOC payment examples
For example, payments on a $100,000 HELOC with a 6% annual percentage rate (APR) may cost around $500 a month during a 10-year draw period when only interest payments are required. That jumps to approximately $1,110 a month when the 10-year repayment period begins.
On the downside, HELOCs have variable interest rates, so your repayments will increase if rates rise. Another risk: A HELOC uses your home as collateral, so if you don't repay what you borrow, the lender could foreclose on it.
As you draw from the account, a HELOC affects your debt-to-income (DTI) ratio. However, if you haven't tapped into your HELOC and the balance is $0, your HELOC will not likely affect your DTI ratio.
Whether you plan to pay off your HELOC when you sell your home, are refinancing or experience a financial windfall, a prepayment penalty could be an unexpected charge. Most prepayment penalties are about 2% of your loan balance, but the amount varies by lender.
For example, if you're remodeling and need to transfer $20,000 from your home equity line of credit (in one institution) to your bank account (in a different institution), you can write a check to yourself to transfer the money.
But if you use a HELOC to pay for discretionary items or everyday needs, because you can't afford them on your salary or with savings, it's bad debt.
A home equity line of credit or HELOC is another type of second mortgage loan. Like a home equity loan, it's secured by the property, but there are some differences in how the two work. A HELOC is a line of credit that you can draw against as needed for a set period of time, typically up to 10 years.
Having a HELOC doesn't prevent you from selling. However, your HELOC balance is repaid from the sale proceeds along with your mortgage, which means less money in your pocket at closing.
If you don't repay the line of credit as agreed, your lender can foreclose on your home. Lenders must disclose the costs and terms of a HELOC. In most cases, they must do so when they give you an application.
If you've taken out a home equity loan (or home equity line of credit) against your home, you can still sell it. If you do so, you will need to pay back the remainder of your loan, and most people use the money generated from the property sale to do that.
Your home is on the line
Unlike defaulting on a credit card — whose penalties amount to late fees and a lower credit score — defaulting on a home equity loan or HELOC could allow your lender to foreclose on your home. There are several steps before that would actually happen, but still, it's a possibility.
By refinancing your HELOC with a cash out refinance, you can get a single loan to pay off both your mortgage and your HELOC. You may be able to lock in a fixed interest rate and reduce the amount of your total monthly payments.
Your account may be suspended. The lender may also be able to take the money you owe directly from your checking account or any other account you have at that bank or credit union. This is called “setoff.”