Quick summary: Learn how to remove PMI without refinancing, compare cancellation routes, calculate your equity target, and prepare a strong servicer request. Before you shop for a refinance, give your current mortgage a 20-minute review. If you have a conventional loan with private mortgage insurance, you may be able to remove PMI through your existing loan servicer—without replacing your mortgage, paying refinance closing costs, or giving up your current interest rate. The right route depends on what kind of mortgage insurance you have, your unpaid principal balance, the home’s accepted value, your payment history, and your servicer’s rules. An online home-value estimate alone will not cancel PMI, and reaching 20% equity does not always make the charge disappear automatically. Use this planning reset to identify your situation, choose the least expensive eligible path, and prepare a clean request for the coming week. Start with the line item on your mortgage statement F...
Updated October 9, 2026
A home equity loan and a home equity line of credit (HELOC) both borrow against your house, and both can look affordable at the start. The surprises come later: a payment that changes without a new purchase, a repayment phase that costs more, or a lender that shrinks your line. These ten answers come mainly from the Consumer Financial Protection Bureau (CFPB) and the IRS.
The basics
1. What is the difference between the two?
The CFPB explains that a home equity loan is a set amount received in one lump sum, and the rate may be fixed or adjustable. A HELOC is a line of credit you can draw from more than once, like a credit card, and it usually has an adjustable rate. If you already have a mortgage, either one is a second mortgage that you pay in addition to the first.
2. What are the draw and repayment periods?
According to the CFPB’s HELOC booklet, a HELOC first has a draw period when you can borrow. Some plans require payments that include principal during this time, and others allow interest-only payments. When the draw period ends, the repayment period starts. The lender may set a schedule to repay the full balance, often over ten or 15 years, or may require the whole balance at once.
What it costs and how payments change
3. Why can my payment change if I did not borrow more?
Variable rates have two parts, an index and a margin. The booklet names the U.S. prime rate and the Constant Maturity Treasury (CMT) rate as common indexes, and it notes that some lenders advertise a low introductory rate for a short time, such as six months. If the index rises, your payment can rise even with the same balance.
| Interest rate | Monthly interest-only payment |
|---|---|
| 9.0% | $300.00 |
| 10.5% | $350.00 |
The math is balance × rate ÷ 12. A 1.5-point rise adds $50 a month on this balance.
4. What is “payment shock” when repayment starts?
If you paid interest only during the draw period, the principal is still all there when repayment begins. Suppose the same $40,000 is repaid over 15 years at an assumed 9%.
Interest-only at 9%: $300.00 a month. Fully paying off over 15 years at 9%: about $405.71 a month. The jump is roughly $105.71 a month, before any change in the rate.
5. What is a balloon payment?
The booklet says some plans require the entire balance at the end, which can be a large amount. You must be ready to refinance it with the lender, get a loan elsewhere or pay it another way, and if you cannot pay it in full you could lose your home.
6. What does it cost up front?
The CFPB lists possible charges: an appraisal fee, an application fee that might not be refunded if you are turned down, and closing costs such as attorney, title search, mortgage preparation and filing, insurance and tax charges. Some lenders waive some or all of them. Also ask about annual, inactivity and early-termination fees.
Your rights and your risks
7. Can the lender freeze or reduce my line?
Yes. The booklet says HELOCs generally let the lender freeze or reduce the line when the home value declines significantly, or a material change in your finances gives the lender a reasonable basis to believe you cannot meet the repayment terms, among other permitted grounds. It suggests talking to the lender, checking your credit reports for errors, asking about a new appraisal, or shopping for another line to pay off the first, though new fees may apply.
8. Can I change my mind after signing?
For a HELOC secured by your principal home, Regulation Z generally gives you until midnight of the third business day after the latest of opening the plan, receiving the cancellation notice, or receiving the material disclosures. Notify the lender in writing. For this deadline, Saturdays count; Sundays and specified federal legal holidays do not. This is not a blanket right for a second home or every later draw under an existing limit. Missing disclosures can extend the period. The separate rule on nonrefundable application fees does not define this cancellation window.
9. What happens if I sell the house?
Generally you must pay the HELOC off in full immediately. The booklet adds that if a sale is likely soon, you should weigh whether paying the up-front costs makes sense. It also warns that renting your home out may be prohibited by your line’s terms.
Taxes
10. Is the interest deductible?
IRS Publication 936 says interest on home equity loans and lines is deductible only if the borrowed money is used to buy, build or substantially improve the home that secures the loan. Using it for other purposes does not qualify, and the deduction is claimed only if you itemize. Mortgage-debt limits and other requirements also apply; qualifying use alone does not guarantee a full deduction. Check the edition of the publication for the tax year you file.
Hypothetical split: A $30,000 HELOC pays $22,000 for a kitchen remodel and $8,000 to clear a credit card. $22,000 ÷ $30,000 = about 73% of the borrowing went to a qualifying use. A tax professional can tell you how to allocate the interest.
Other ways to borrow, according to the CFPB
| Source | Rate | Is your home at risk? | Typical drawback |
|---|---|---|---|
| Home equity loan (second mortgage) | Fixed or adjustable | Yes | To borrow more you need a new loan |
| HELOC | Variable | Yes | Payment can change; repayment often due when you sell |
| Cash-out refinance | Variable or fixed | Yes | Closing costs are generally higher |
| Personal line of credit | Typically variable | No | Needs solid credit; higher rate |
| Retirement plan loan | Fixed | No | If you leave your job, the balance may come due |
| Credit card | Fixed or variable | No | Higher interest rate |
Compare three offers on the same lines
The booklet includes a worksheet. Copy these lines for each lender so the offers match:
- Credit limit and any minimum draw or minimum balance
- Fixed or variable rate, the index, the margin, how often it adjusts and any cap or floor
- Length of the draw period and the repayment period
- Appraisal, application, closing and early-termination fees
- Annual, transaction and inactivity fees
- Whether the plan ends with a balloon payment
Three questions to ask yourself
The CFPB’s closing prompts are worth answering in writing. Have you looked at other sources of money besides a HELOC? Have you compared offers? Could you live with the worst case, where you could lose your home? If you are unsure, the CFPB says you can ask for a HUD-approved housing counselor, and its page lists (855) 411-2372 to be connected.