Home Equity Loans
A Home Equity Line of Credit (HELOC)
A Home Equity Line of Credit is like a credit card. You can borrow money up to your credit limit, and you only get charged interest on the portion that you borrow. You can pay down the balance, then reuse the credit. Most have a draw term, usually 5 to 10 years, where you can draw money out, then the loan is paid back over a 10 to 15 year period. You may also elect to refinance the Equity Line and get another 5 to 10 years to use the line of credit.
You choose what you want to do with your home equity line of credit:
- Remodel your home
- Take a vacation
- Consolidate bills
- Buy a car, boat or RV
- Finance tuition or other expense
- Use it as an emergency fund
There are many features of HELOC loan programs. Ask your Loan Officer to help you decide which is best for you.
- Great Rates: rates can be below the prime rate on some programs.
- No Loan Fees: No appraisal fee or closing costs.
- Convenient Closings: Some programs allow doc signing in your home.
- Credit lines or maximum loan limits vary with each program.
- Pricing varies with the LTV.
- Accessing the cash in your credit line can be done by writing a check, charging on a credit card or making a withdrawal at a financial center.
- Many of these programs have an early termination fee.
- Some programs may offer a fixed rate loan option feature, where you can lock in a fixed rate on all or a portion of your outstanding balance.
- Pricing is based on your Credit Score. These cutoff limits are fairly strict, so if your score is just below the next higher range, you may want to discuss how to improve your score with your loan officer.
A HELOC is usually 100% tax-deductible*, and a smart way to consolidate debt, pay for home improvements, new automobiles, student loans or even vacations or weddings.
Home Equity Fixed Rate Loan
You may prefer a home equity fixed rate loan compared to a HELOC. Home equity fixed rate loans offer a wide variety of amortization periods (length of time to pay it back), more choices for people with less-than-perfect credit, fixed rates so your rate can never go up and the interest paid may also be tax-deductible*!
* It is recommended that Customers consult their tax advisor. Not all loan fees or interest payments are tax deductible.
Home Equity Line of Credit Maxed Out?
If your home equity line of credit is maxed out there is usually only one way to go and that way is to refinance your home equity line of credit and your first mortgage into one new loan.
When deciding if combining your first and second mortgages into one payment is a good idea the general rule of thumb is that if you have at least $20-$25k on a home equity line of credit you should refinance. If it is less than $20k then it might not make as much sense to refinance because there are closing costs involved. Of course you should look at how high the interest rate is on your second mortgage but you should also take into consideration what the interest rate is on your first mortgage. Even if your first mortgage has a low interest rate you should at least look at refinancing to see if it will save you money monthly. In more cases than not the borrower will be saving a considerable amount of money each month by combining the two mortgages.
Another reason to combine the two mortgages together is because the home equity line of credit is at an adjustable rate. An adjustable rate is subject to change. On heloc's the rate will change when the Feds either raise or lower the prime rate. Even though the Fed's just lowered prime by .50% it is still at 8.25% which is high compared to a 30 yr fixed.
Your credit score will also increase once you pay off the two mortgages. You will also have the ease and convenience of one mortgage payment and one mortgage lender to deal with.
By getting a fixed rate first mortgage you will also give yourself peace of mind. The peace of mind that comes from knowing that your mortgage payment is not going to go up is priceless. This is especially true for borrowers on fixed incomes. Borrowers that are on fixed incomes do not need the stress of adjustable rate mortgages.
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