Home Equity Line of Credit
Use the equity in your home to get a home equity loan, also known as a HELOC program.
Homeowners can tap the equity in their home using a home equity line of credit (HELOC) that will allow you to use your property as collateral. Home equity loans are used as second mortgages or as stand alone products that allow you to borrow money as you need it for home improvements. They can also be held in first positions (1st mortgage) for home buyers,with up to 95% purchase money. If you have an excellent credit history, sufficient income, have the equity available in your property, and good combined debt ratio, you are likely to be approved for a home equity line of credit. Use our quick quote to learn more!
There are two types of home equity loans, open ended (Home Equity Line of Credit) and closed end (Home Equity Loan). Both of these loan types are also known as second mortgages, as both use your home as collateral just like a traditional first mortgage. Mostly, home equity loans and lines of credit are designed for a shorter time period than the primary mortgage. During a economic down cycle, having a home equity line of credit available to draw on can mean the difference between surviving a job loss and keeping your home or losing your home. You don't have to actually use a home equity line of credit in order to have it ready on standby for financial emergencies! To get started, use our fast and easy quick quote.
Contrary to how the industry represents HELOC loan programs, the home equity line of credit is not recommended as a long term financing option because of the cost of money in the form of interest you pay on the product. This open ended line of credit gives you the flexibility of drawing funds out as needed and paying interest only for a fixed period. However, eventually, the note fully amortizes and is typically tied to high cost adjustable rates. Long term, this can be just like having a credit card, except this credit card is secured by your home. If you plan to own your home for a long period of time, we recommend a cash out refinance loan instead, as it will traditionally offer you a long term lower cost of funds when compared to a home equity line of credit (depending upon the amount you are financing, of course).
Usually, mortgages are set for a fixed time period of 30 years, but the typical home equity loan and line of credit are designed to be repaid in 15 years to 25 years. In some instances, dependent upon secondary market conditions, you may be able to attain terms as long as 30 years. You can also gain tax benefits when you deduct home equity loan interest on your personal income taxes; however, please consult a tax professional before making any mortgage financing decisions based upon interest deductions. Learn more by using our quick quote for more information.
What does collateral mean? Collateral is the property that you pledge as a security or guarantee against a loan. The collateral represents a promise by you that the note will be repaid within the loan terms. If you default on the repayments, the lender can take your home and sell it to recover any funds owed by you, plus costs associated with the process.
Equity is the difference in amount between the value of your home and the amount you owe on the mortgage. Here's an example to illustrate this: First, let's say your home is worth $200,000. You make a $20,000 down payment and borrow $180,000. So the day you buy the house, your home's equity and the down payment are the same ($200,000 - $180,000 = $20,000). Let's fast forward to five years from now. Assuming that you have been making your monthly installments and have paid off $13,000 of mortgage principle debt, you are still left with $167,000. However, in the past 5 years, the value of your home has increased and now it's worth $300,000. So your home's new equity is $133,000 ($300,000 - $167,000).
A home equity line of credit or HELOC is similar to a credit card in mechanism -- it offers a revolving balance. With a HELOC, you can borrow up to a set amount of money for the duration of the equity loan where the time limit is set. While you can withdraw money as the need arises, you must pay off the principal in order to use any home equity credit again. Use our quick quote to get started!
A HELOC allows more flexibility than a fixed-rate home equity loan. Moreover, a line of credit typically pays interest only first, has a fluctuating rate of interest, and has installments that are dependent on the interest rate, amount still owed, and whether the line of credit is within the loan draw period or the repayment period.
If you need to borrow money, you can do so during the draw period (5-10 years); however, while during repayment (10-15 years), you can't withdraw any money unless you repay the balance remaining on the loan and take out a new home equity line of credit.
And remember, you need to pay off the balance if you decide to sell your home if you have borrowed on a home equity loan or a line of credit. To learn more about the mortgage HELOC and home equity loan program, along with which program is right for your situation, use our quick quote!