By Jeff Lazerson | jlazerson@mortgagegrader.com | MortgageGrader.com | March 9, 2026

Article originally posted in Orange County Register on March 5, 2026

Most lenders underwrite very conservatively when it comes to a home equity line of credit, or HELOC. Stricter requirements mean qualifying for less money.

Today, I’ll share an alternative HELOC for homeowners who need to tap more equity but with a lower monthly payment.

First, let’s review the standard equity loan.

A HELOC typically has an optional interest-only component for the first 10 years, allowing the homeowner to borrow more, assuming he/she didn’t take the maximum amount of the equity to begin with. Then it allows the borrower to repay, amortizing the remaining balance over 20 years.

Let’s say you had a $250,000 HELOC at a 9.5% interest-only rate for the first 10 years. The minimum, interest-only payment would be $1,979. The fully amortizing payment over 30 years is $2,102. To qualify, the lender typically takes the amortizing payment plus the first mortgage payment and other bills, divided by your monthly gross income.

In the case of a HELOC, the lender assumes the borrower will not pay the balance down in the first 10 years. So, the borrower must qualify at 9.5% over 20 years, which provides a principal and interest payment of $2,330.

An interesting new HELOC named Equity Select is available from High Tech Lending. It allows you to qualify for a much lower payment through a complicated formula that I’m not going to try to explain here (email or call me if you want the exact formula).

Full disclosure: My company does business with High Tech Lending.

While I consider this something of a “last resort” loan, the program is aimed at people looking to tap equity to pay for medical or consumer debt or just to live. In my experience, I’ve seen that many people are equity rich and cash poor, living on fixed incomes, which makes it difficult to qualify for a regular mortgage or a traditional HELOC.

This new HELOC has a maximum loan to value that I consider very conservative. In other words, the borrower must have a lot of remaining equity to even qualify for the loan. In some cases, the only other choice for many homeowners is to sell the property.

The Equity Select HELOC comes with a 9.66% rate, and the payment for $250,000 borrowed is just $326. In a standard HELOC, the payment would be $2,330.

Say you are a borrower with monthly income of $5,000 wanting a $250,000 HELOC. You have a first mortgage payment of $2,000 and no other bills. Add the Equity Select payment of $326 and you get a ratio of 46.5% ($2,326 divided by $5,000). This program allows for an income and debt ratio up to 50%. So, you qualify for the $250,000 HELOC.

Now let’s say you are qualifying for a HELOC using the standard qualifying example that usually allows a debt ratio up to 45%. Take $2,000 plus $2,330 totals at $4,330. Divide $4,330 by $5,000 of income, and you have a debt ratio of 86.6%. That’s way too high.

You’d have to take a HELOC of just $25,000 at 9.5% to qualify for the standard HELOC. The formula is $2,000 plus $233 ($25,000 at 9.5% over 20 years). Take $2,000 plus $233 divided by $5,000 equals a debt ratio of 44.7%.

The Equity Select HELOC provides a loan amount 10 times the $25,000 standard HELOC at $250,000. That’s really a big deal when you are trying to qualify for more than $25,000. (The lender, by the way, makes its money through the higher interest rate.) 

Now let’s go through the fine print of this program.

Like a reverse mortgage, the Equity Select HELOC is potentially a negatively amortizing mortgage. This means the loan balance can increase if you don’t at least make the full monthly interest-only payment. In the example above, that would be $2,000 monthly.

The HELOC provides for three payment options: minimum interest-only payment of anywhere between 1% and 5% of the loan balance, interest-only payment on the whole loan balance or the fully amortizing payment. In the olden days, this type of mortgage was called Pick-a-Payment or Option Arm.

During the mortgage meltdown days of the Great Recession, negatively amortizing loans were one of the predatory loan culprits. When minimum required payments were less than paying full interest only, the shortage was added to the principal balance.

Unlike the old negative amortization ARMs requiring just 20% down, this program is very conservative in its maximum loan-to-value. It uses an actuary table like a reverse mortgage to max out eligibility for a borrower.

For example, the maximum loan-to-value of a 65-year-old is just 51%. On a $750,000 property, your loan maximum (between your first mortgage and the Equity Select) would be $382,500. The big idea here is to never allow the borrower to get close to being underwater, even if the borrower made the bare minimum payment each month.

You can do this as a first mortgage or a second. On a first mortgage, the maximum loan is $4 million. As a second mortgage, it’s a $1 million loan limit.

The mortgage term is 40 years. The interest-only or minimum payment portion is good for the first 20 years. There is no prepayment penalty.

This is a nonrecourse loan, meaning the lender can’t go after your personal assets if you were to default on the mortgage. They could foreclose the property, though.

There are an awful lot of people out there who struggle to qualify for a HELOC but want to tap their equity.

This financial instrument is especially helpful for folks with high debt ratios for typical HELOCs. Even if they can’t afford to make the full monthly amortizing payment or the full interest-only payment, it might be OK with them if the loan balance moves up some.

The loan is similar to a reverse mortgage (but carries no age restrictions) and also is aimed at seniors. But better than a reverse, these HELOC borrowers are mandated to pay something every month so the negative amortization is much less. And their heirs may look more favorably on this type of loan rather than a reverse because there will be more equity left in the home when the parent dies.

The big takeaway here is this alternative HELOC allows homeowners to keep their low, pandemic-era mortgage rates and still tap needed equity.

Freddie Mac rate news: The 30-year fixed rate averaged 6%, 2 basis points higher than the previous week. The 15-year fixed rate averaged 5.43%, 1 basis point lower than the previous week.

The Mortgage Bankers Association reported an 11% mortgage application increase compared with one week ago.

Bottom line: Assuming a borrower gets an average 30-year fixed rate on a conforming $832,750 loan, last year’s payment was $342 more than last week’s payment of $4,993.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: a 30-year FHA at 5.375 %, a 15-year conventional at 5.125%, a 30-year conventional at 5.75%, a 15-year high-balance conventional at 5.625% ($832,751 to $1,249,125 in Los Angeles and Orange County and $832,751 to $1,104,000 in San Diego), a 30-year high-balance conventional at 6.125% and a jumbo 30-year fixed at 5.99%.

Eye-catcher loan program of the week: a 30-year mortgage, fixed for the first five years at 5.125%, with a 30% down payment and a 1-point cost.

Jeff Lazerson, president of Mortgage Grader, can be reached at 949-322-8640 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

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