How to Increase a Home Equity Line of Credit

Home equity lines of credit are capped at line amounts established during the underwriting process. Most banks allow customers to apply for an increase to an existing home equity line of credit rather than refinance it into a new loan. Modifications are less expensive than new lines because in most states, intangible taxes and state document fees are based upon line amounts. A line increase affects the available credit but does not lengthen the term of the original loan.

Call the bank holding the existing home equity line. Set up an appointment to meet with a loan officer. Ask what documents are required to take a loan application.

Go to the bank. Give the loan officer the account number of the existing loan. Ask the officer to enter an application for a line increase. Provide the banker with income verification, homeowners insurance, warranty deed and ID. Any co-owners or co-borrowers listed on the existing loan must also provide their income information and ID. The loan officer will review the credit and income to determine eligibility. The bank will order an electronic or full appraisal of the home. Agree on a time for a follow-up appointment.

Go to the second appointment. Discuss the home value, debt-to-income ratio (DTI) and credit bureau reports. The loan officer will tell you the maximum increase you can qualify for and the applicable interest rate-tiers. Decide whether to increase the line of credit to the maximum or a lesser amount. Arrange a loan closing.

Close the loan. Some banks may require an immediate draw on the additional funds. If necessary, withdraw funds from the line and transfer them to your checking account.

Tips

  • Shop around for HELOCs because many banks have curtailed HELOC lending in recent years and restrict customers to loan-to-value ratios below 70-percent of a homes value. Increasing an existing line of credit reduces closing costs but if a competitor has a significantly lower interest rate it might be worth replacing the entire loan.

Warnings

  • When a line of credit is increased the interest rate available at the time of the increase becomes the new rate for the entire line amount. Many loans issued before 2008 had low interest rates based on margins below prime but due to increased risk management, most banks now price lines of credit at margins above prime. The interest rate on existing line of credit balances can increase by two-percent or more if a line amount is increased.

    HELOCs have variable rates and rates rise any time the Prime Rate or other index they are attached to rises.

    Most banks no longer offer HELOCs attached to rental properties or non-primary residences. Banks who do not allow new lines on these properties will not allow increases to existing lines.

References