A Home Equity Line of Credit (HELOC)
Home equity lines are adjustable rate mortgages that are typically tied to the Prime Lending Rate. They are usually positioned behind your first mortgage (i.e. as a second mortgage). A Home Equity Line of Credit is similar to a credit card. You can borrow money up to your credit limit, and you are only charged interest on the portion that you borrow. You can pay down the balance, then reuse the available credit. Most HELOC's have an initial "draw term", usually 10 years, in which you can draw money out, and for which a minimum monthly payment is required. After the draw period ends, you typically have another 10-20 year "pay-back" period which then requires payments that will fully amortize and pay off your remaining balance. You may also elect to refinance the Equity Line after the draw period is over and obtain another 10 years or so to draw on the line of credit as needed.
You choose what you want to do with your home equity line of credit:
- Remodel your home
- Take a vacation
- Consolidate bills
- Purchase a luxury item
- Finance tuition or other expenses
- Use it as an emergency fund
- Fund investments
There are many features of HELOC loan programs. Ask your Loan Officer to help explain all the available choices.
- No Loan Fees: No appraisal fee or closing costs in most cases.
- Great Rates: Rates can be below the prime rate on some programs.
- Convenient Closings: Most programs allow you to sign papers at home.
- Maximum loan limits vary with each program, some as high as $1M or more.
- Accessing the cash in your credit line can be accomplished by writing a check, charging it on a credit card or making a withdrawal at a financial center.
- Many of these programs have an early termination fee, although typically very small.
- Some programs may offer a fixed rate loan option feature, in which you can lock in a fixed rate on all or a portion of your outstanding balance.
- Pricing is typically based on your LTV (loan to value ratio) and your credit score. Credit score limits are fairly strict, so if your score is just below the next highest range, that will result in a better rate, you may want to discuss how to improve your score with your loan officer. A HELOC is usually 100% tax-deductible. Contact your accountant to determine your tax savings.
Home Equity Fixed Rate Loan
You may prefer a home equity fixed rate loan compared to the adjustable rate HELOC. Home equity fixed rate loans provide you the funds you need in one easy, lump-sum disbursement. Ideal for major one-time expenses such as buying a new car, financing the down payment on a house, or consolidating bills. Fixed home equity loans offer a wide variety of amortization periods (length of time to pay it back), more choices for people with less-than-perfect credit, and fixed rates so your payment can never go up. In most cases, as with the HELOC, the interest paid is tax-deductible; however, fixed rate home equity loans typically carry a higher initial rate than on an adjustable rate HELOC and they do not offer any monthly payment flexibility. One of our experienced loan officers can help you determine whether a fixed home equity loan or an adjustable rate home equity line of credit will best suit your needs.
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