How much can you Borrow? The question everyone applying for a loan wants the answer to is “how much do I qualify for? Depending on your credit score & the amount of your revolving debt, a few home equity lenders may let you borrow up to 100% of the appraised value of your home. When you apply for a loan online, always ask the lender about the terms for the home equity loan. How many years is the loan for? Is the interest rate fixed or variable? If you are applying for a home equity line of credit, discuss whether or not there is a minimum draw requirement at closing.Don’t forget to find out about the accessibility. In other words, how do you access to your credit line? (ie. checks, credit card, etc.?) Ask the loan officer if after the draw period expires, whether or not it will you may be able to renew your credit line. If you cannot, find out if the interest rate will continue to be variable for the repayment period. If there are fixed rate options, get them.Verify with your loan officer that there is no balloon payment with the second mortgage. If there is, you may be required to pay off the entire outstanding balance, when the balloon payment is due.How much cash can you get out of your home? If you have good credit, and have for example $75,000 in equity, you should be able access the entire $75,000. There are quite a few home equity lenders that offer equity loans up to 100% of the appraised value of your home. A few brokers and lenders, like BD Nationwide Mortgage can offer you second mortgages up to 125% of home’s appraised value. Typically 125% loans will have some cash out limits. Depending upon your credit score, 125% second mortgages will allow cash back between $25,000 and $75,000 in addition to the debt consolidation.
The U.S. Federal Reserve has raised interest rates five times since June, with more hikes being predicted. Short-term interest rates raised 15 times over the past two years and rates on home equity lines of credit are at a five-year high. As a result, the growth of home equity loans is slowing, especially home equity lines of credit (HELOCs) and adjustable rate mortgages (ARMs) due to their variable interest rates that adjust based on a standardized index (e.g., the Eleventh District Cost of Funds Index, United States One-Year Treasury Bill, or Wall Street Prime Index).Now, credit line borrowers are paying off their home equity lines in increasing numbers by refinancing into fixed rate second mortgages. For example, at Wells Fargo, the number of borrowers prepaying their credit lines has climbed 50% this year. At Wachovia Corp., 40% of customers are choosing fixed-rate home equity loans, compared with 30% last year.To attract new borrowers and keep current credit line customers from paying off their loans, lenders are “sweetening the pot.” According to RealEstateJournal, U.S. Bank, a unit of U.S. Bancorp, this week introduced a home-equity loan with a rate of 5.99% that’s fixed for 20 years; previous rates in most markets were 6.99% or higher. J.P. Morgan Chase & Co. has cut home equity rates for some borrowers on its lines of credit to 0.76% below the prevailing prime rate of 6.75%. Other banks are also offering enticements to keep customers from paying off their home equity lines of credit.Adjustable mortgage rate borrowers are scrambling to refinance into fixed rate mortgages (FRMs) to lock into fixed interest rates before the next rate hike. Holden Lewis, senior reporter with Bankrate says, “Looking at mortgage rates, the 13-week average is higher than the 52-week average; the four-week average is higher than the 13-week average, and this week’s rate is higher than the four-week average. The upward momentum is undeniable.” And, according to Moody’s Economy.com, more than $2 trillion of adjustable-rate mortgages come up for interest-rate resets in 2006 and 2007.