Can You Increase a HELOC’s Limit?
A home equity line of credit (HELOC) can be a smart way to borrow cash. Not only can it give you larger amounts than you’d typically get with a credit card or personal loan, but it also allows access to that money for an extended period of time.
You can spend some now, repay it next year, and then withdraw more five years later.
Some day, though, you might find yourself with a large cost that your HELOC limit can’t cover. If that happens, you might consider increasing your HELOC limit and borrowing more from your home equity. Here’s what to know about this option and how to go about it.
Can I Increase my HELOC Limit?
Yes, HELOC limits can be increased, but your options depend on your lender and the value of your home.
Most importantly, you must have enough additional equity to borrow from. So if your home’s value has increased or you’ve paid down your loan since first applying for your HELOC, it may be possible. If the opposite has happened, though, you might need to explore other options.
How Home Appreciation and Depreciation Impacts your HELOC Limit
Your home’s value plays a critical role in determining your HELOC limit. When your home appreciates, your equity increases, potentially allowing you to borrow more against your home. On the other hand, if your home depreciates, your equity decreases, which could limit or even reduce your borrowing capacity.
Home Appreciation:
When your home’s value increases, it boosts your available equity. For example, if you bought your home for $300,000 and its value rises to $350,000, your equity grows by $50,000. This additional equity can be tapped into by increasing your HELOC limit, provided you meet other lender requirements. Appreciation generally reflects a strong real estate market or significant improvements to the property, both of which enhance your borrowing power.
Home Depreciation:
Conversely, if your home’s value declines, your available equity shrinks. For instance, if the value drops from $300,000 to $250,000, your equity reduces by $50,000. This depreciation can occur due to market downturns, economic factors, or property damage. With less equity, lenders are less likely to approve an increase in your HELOC limit. In some cases, they may even reduce your existing limit to align with the current value of your home.
How to Increase Your HELOC Limit
There are three potential options to increase your HELOC. Firstly, you can ask your lender about a loan modification. This permanently changes the term of your loan — its rate, term, or sometimes, its amount. However, you may face a fee for a loan modification (if your lender even offers this option).
The other option is to refinance your HELOC, either with your current lender or a new one. Using this strategy, you’ll get a new HELOC that’s larger than your current one. This uses those funds to pay off the old line of credit and enjoy a larger limit moving forward.
Finally, you can take out an additional HELOC. This may be difficult to qualify for and come with a higher interest rate, as it increases the lender's risk. You will also add a third monthly payment to your household (your first mortgage, your first HELOC, and now the new HELOC).
Pros and Cons of Increasing your HELOC Limit
The biggest advantage of increasing your HELOC limit is that you have access to more cash, which you can use to improve your home, pay off debt, or achieve other goals.
You might also be able to snag a lower interest rate than you would have on alternative products, like credit cards or personal loans. This also makes them a smart option for consolidating debts.
On the downside, you’ll increase financial pressure on your household by increasing your payments (or adding a new one), and it could be hard to qualify for. You also may owe fees, either for any of the options listed above, and it will increase your overall risk of foreclosure.
Pros | Cons |
Access to more cash | Increases or adds to your monthly payments |
Good for consolidating debt | May come with fees and/or closing costs |
Lower interest rates than other financial products | Increases your risk of foreclosure |
Difficult to qualify for |
Alternatives to Increasing your HELOC Limit
Increasing your HELOC limit isn’t the only option if you need money. A cash-out refinance of your main mortgage can help too. Just remember that this replaces your interest rate, so this may not be wise if current mortgage rates are much higher than your current loan’s.
A home equity loan may also be an option, though this adds another monthly payment as well. On the bright side, these are typically fixed-rate loans spread over up to 30 years, so you may be able to manage the payment with proper budgeting.
Credit cards should be a last resort. Current rates on credit cards are over 21% according to the Federal Reserve whereas HELOC rates are in the 8 to 10% range.
