NOVEMBER 23RD, 2014

Home Equity Lines of Credit – HELOCs

Many consumers are interested in knowing what reason they might have to investigate a Home Equity Lines of Credit (HELOCs). A great deal of consumers are virtually unaware that their home is a unseen source of wealth for their use. A HELOC may be just the avenue for consumers to access that source. Utilizing a credit line for borrowing against equity in one’s home has become a popular source of credit. HELOCs are now being offered by lenders in a variety of ways. Many consumers will find a HELOC assistive for unavoidable & unexpected circumstances such as high-priced, necessary, home improvements, etc. A major difference between a HELOC and other kinds of loans is that a consumer does not have to borrow the full amount. Consumers can obtain approval for a credit limit and can use either a checking account or a credit card to “draw” from that credit line.

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Consumers should be aware when deciding how much of a HELOC they will be able to open, they will need to ascertain how much equity is in their home. It is important that consumers realize that their home’s equity is not based on what the consumer paid for their home but is based on what their home is valued at.

Should a consumer consider a line of credit, they may wish to also investigate taking a Second Mortgage out or else consider Refinancing the whole amount. Second Mortgage interest rates are typically lower than a HELOC although the rates are higher than rates on primary mortgages. If a consumer does decide to look for a Refinance loan, they should make certain to add up all the costs before making a decision on a lender. There are additional costs like filing fees, attorney fees, title searches, as well as insurance and taxes which can all add up to the overall loan cost. If a consumer obtains a HELOC or Second Mortgage, they can typically borrow up to 75% or more of their equity and the amount borrowed would be their credit limit.

About Home Equity Lines of Credit and Recent News, News History, if applicable

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How is the APR Calculated for HELOCs?

The APR on a line of credit is calculated slightly different from a traditional Second Mortgage. A HELOC APR is based on the interest rate alone; it does not include points nor other charges. A traditional Second Mortgage APR is inclusive of the interest rate billed plus points as well as other financial charges. Points can be included in the total loan amount and one point is equivalent to 1% of the credit line amount.

Is There Underlying Collateral Involved with a HELOC?

Of course – the collateral is a consumer’s home; hence, it is vitally important to meet all terms of the loan inclusive of repayment. Otherwise, a consumer could find themselves in a foreclosure situation.

How Would a Consumer Repay a HELOC?

Most probably have to pay a minimum monthly requirement although it will likely be interest only until the consumer’s “draw period” is concluded. Thereafter, the principal balance may be paid off in a lump sum, or else in accordance to an amortization schedule.

What Index is Involved and Why Get a HELOC?

A HELOC interest rate is based on an index like Prime Rate. The Prime Rate is offered to consumers with excellent credit and likely varies between banks. The interest rate will likely change over time and this can be beneficial if the rate declines.

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