What Is a HELOC Early Disclosure?

A home equity line of credit (HELOC) lets borrowers tap the existing equity in their home. Instead of getting a lump sum all at once, a line of credit lets borrowers draw upon the equity as needed. They can take out as much or as little as they want, up to the HELOC limit.

Before finalizing the HELOC, the lender will send you an early disclosure form that contains important information about your HELOC. 

Find out how this form works, what’s in it, and why you should read it.

Why is a HELOC early disclosure important?

A HELOC early disclosure is the best way to learn about your HELOC’s terms and conditions. It outlines important information, such as:

• What can happen to your home if you don’t repay your HELOC as agreed
• Under what conditions your lender can terminate or reduce your credit line
• The length of your draw period
• How a variable APR may impact your payments
• Any fees associated with your HELOC

HELOC early disclosures also specify minimum draw requirements, what types of insurance you must maintain on your property, and if you can convert your variable-rate HELOC to a fixed-rate loan at the end of your draw period.

Read through this disclosure carefully so you aren’t surprised later if your interest rate or payment changes. We recommend you make a list of follow-up questions as you review it. 

What does a HELOC early disclosure look like?

You can expect to get your early disclosure form in the mail, even if you completed your HELOC application online or by phone. 

It might be several pages long, but it should be clearly marked. The sections are often separate and labeled in bold type so you can find what you’re looking for.

Below is an image of the first page of a sample early disclosure form from Hanscom Federal Credit Union (HFCU) in Massachusetts:

Source: HFCU.

Your early disclosure form may be formatted differently depending on your lender, but the information should be similar.

HELOC early disclosure requirements

The early disclosure form may contain the following sections:

Availability of terms

This section explains the terms of the HELOC—for instance, that they may change at any time, but you can cancel the agreement if they do. It will also dictate what fees the lender must refund if you cancel the HELOC for this reason. 

Security interest

This means the lender can repossess your home if you break the terms of the HELOC—for example, if you stop making payments and default on the HELOC.

Minimum payment requirements and example

This section explains what the minimum payment will be and what it means to make the minimum payment on your HELOC. 

It may describe scenarios that will change the minimum payment, such as a requirement to pay off the entire balance if the total amount falls below a certain threshold. 

Variable-rate feature

If you have a variable-rate HELOC, this section explains how the variable interest rate works and what it is based on, often the prime rate. It may include a table showing how the prime rate affects your variable interest rate.

Fixed-rate feature

If you have a fixed-rate option on your HELOC, this section shows how the fixed rate works. It may stay the same during the draw period and repayment period, or you might have different interest rates for the draw period and repayment period.

Transaction requirements

This part will state whether minimum draw or other transaction requirements apply. Some lenders have a minimum amount you must withdraw at a time.

Annual percentage rate

This part will explain how the APR is calculated and whether it may increase or decrease during the term.

Fees and charges

This section will outline fees you must pay, such as an annual fee or a processing fee. You can avoid certain fees—including late fees and prepayment penalties—while others are mandatory.

Maximum rate and payment example

This will show the maximum possible interest rate and an example of the maximum monthly payment. This section can help you plan ahead so you know what to expect if rates skyrocket during the draw or repayment period.

Historical example

This will show an example of how interest rates have changed over time and how they have affected monthly payments. It can help you understand how your own payment may increase or decrease. 

Is there any important information about my HELOC terms that won’t be in the early disclosure?

Important general information about a HELOC account with this lender will be in the early disclosure. 

However, the disclosure may not contain information specific to your line of credit (such as your interest rate and line of credit).

If you didn’t receive or can’t find key information, contact the lender.

Can any terms in the HELOC early disclosure change?

Whether terms can change should be included in your early disclosure form. 

Make note of language suggesting certain factors may change. You can also contact the lender and ask whether anything may change after you finalize the HELOC.

What to look out for in a HELOC early disclosure

Make sure to read through the interest rate sections to understand whether your rate may change over the life of the HELOC.

 If you have a variable rate, you should go over the maximum payment example to ensure you can afford the highest payment.

Also, look over the fee section and make sure there are no fees you don’t recognize. Reach out to the lender if you have further questions.

Find out more about how to apply for a HELOC.