Do you need extra cash to pay your child’s college expenses, or perhaps you want to remodel your home? Whatever the reason, a home equity line of credit, or HELOC is the answer. A home equity line of credit is unlike a standard loan and a mortgage refinance. Here are three reasons why you should apply for a HELOC.1. Easy Access to Fund: With a home equity line of credit, accessing money from your account is easy. In many cases, the home equity lender supplies borrowers with checks or a debit/credit card. Whenever you need extra cash for a project or emergency, simply write yourself a check or use a debit/credit card to withdraw money. The entire process is simple and convenient, and you do not have to wait days to access the money. The funds are available when you need it.2. Converts to a Fixed Rate: The majority of home equity lines of credits are adjustable rates. However, some have the option of converting to a fixed rate, which is good for persons who don’t want to deal with an interest rate increase. Before applying for a specific HELOC, inquire about the option to switch to a fixed rate. A fixed rate is desirable because adjustable home equity lines of credits do not have a rate cap. Since interest rates can change rapidly, a sudden rise will increase minimum payments.3. Long Withdraw Period: Home equity lines of credit offer a long withdraw period. Once a request for a home equity line of credit is approved, the borrower is free to draw on the account for a set period of up to 10 years. As long as the account remains in good standing, the funds are available to the homeowner. If the borrower does not repay the HELOC, the mortgage lender can terminate the line of credit early, and request full repayment
No matter what your credit situation, you can refinance your home equity line of credit. Trading in the unpredictability of adjustable rates, you can refi for secure rates. You also have the option to restructure your debt, enabling you to get out of debt sooner or to extend your terms for more manageable payments.When Does Credit Matter?Your credit score won’t prevent you from refinancing since you already have the security of your home to back your refi. Poor credit will affect the rates you can qualify for. However, you can overcome this with a few tips.First of all, carefully search out loan quotes to find the lowest
rates. You don’t want to base your decision on publicly posted rates since they don’t apply to your credit situation. Instead, request loan estimates based on your unique credit profile, just don’t allow access to your credit report at this time.You can also trim rates by rolling over your line of credit into a
second mortgage or combining it with your first mortgage. These types of loans offer better rates than line of credits, but closing costs are more expensive. Another option is to shorten your loan term to five years. Not only will you save money on actual interest charges, but you will also qualify for lower rates.Are Lowest Rates The Only Goal?There are many loan options that affect your financial bottom line besides rates. For instance, loan terms can save you money on interest or help you reduce your monthly payment. Ideally, you want the cheapest, shortest loan. But if finances are tight, paying additional interest to lengthen your loan may be worth it.Peace of mind is also important to people, especially when it comes to their mortgage payments. That’s why a fixed rate loan can be appealing, even if it has higher rates than adjustable rate loans. Caps, which are negotiable, also offer security for those with adjustable rates.Closing costs and annual fees can also add to the cost of a loan. That’s why you want to consider the APR to understand the true cost of the loan. With a little bit of comparison shopping on your part, you can find a reasonable refinancing no matter what your credit score is.
A home equity loan is a loan based on the equity of your home. In a home equity loan, the lender shares a security interest in your home. If the loan is not repaid with interest, the lender can claim your home. Equity is the value of your home, minus any mortgages and liens.The loan is available in two formats. The Home Equity Line of Credit or HELOC is offered like a credit card and permits you to draw money against the equity in an emergency. HELOC is available at lower interest rates. The other format of homeowner loans is the Home Equity Loan or HELOC. The interest rate of the loan is fixed with a set repayment schedule. The repayment term of a HELOC is usually limited to 20 years.HELOC provides an easy access to money, without unnecessary formalities. These loans are made available at a favorable interest rate. Taking into consideration an applicant’s credit history and the prevailing interest rate, the applicant is offered home equity at a reasonable rate. Relatively inexpensive to obtain, a home equity loan can be used for any purpose, such as home improvement, college tuition, debt consolidation or buying a new car and even funding a vacation. However, HELOC is a second mortgage. The rate of a HELOC is higher than a fixed-rate first mortgage. This makes the loan riskier for lenders to recoup their investment. The higher rate of interest leads to the creation of a higher monthly payment.On the other hand, a HELOC provides the applicant with more repayment flexibility and provides the appropriate amount when needed. The HELOC best serves short-term finance needs. It is the best assurance to availability of cash and can be covered within a few months after it has been incurred.There are a number of disadvantages with HELOC. The rates of interest fluctuate with time. Private banks providing HELOC sometimes exploit the borrowers, regardless of age or gender. These lenders are even known to use abusive and exploitative strategies to recover their loans. Thus, it is necessary for loan-applicants to conduct thorough research before borrowing.
If you decide to sell your home, you most likely are going to want to buy another one. This process is known as stepping up in the market, but can lead to financing problems.Selling and buying homes can be a bit stressful to say the least. If you recall the process of buying your first home, you know this is more than true. Now that you are going to both sell your current home and buy another, you are going to have twice the stress. There is also another problem that may arise. It is known as the financing gap.When you sell a home, the transaction will close upon an agreed upon date. At the same time, you are going to be trying to buy a home that will close on or near the same date in question. At least, that is how you should try to line it up. The problem, of course, is coming up with money for the new purchase. You may have a lot of equity in your first home, but it is in a non-liquid form, to wit, you can’t spend it. When you need to put down an earnest money deposit or down payment on the new home, how do you come up with the money?The typical answer for filling this “financing gap” is to get a bridge loan. A bridge loan is a short term loan of two to three months that gives you the liquidity required to purchase the new home. Sound great, right? Well, short term loans are infamously expensive. Points and fees are, frankly, outrageous. So, is there another solution?One option is to try to use your home equity line of credit. A line of credit on your home is just what it sounds like. It allows you to tap your equity in the home, often through a checking account. If you actually sell the home at some point, the line becomes due immediately upon closing. That being said, you can still time out the sale and purchase real estate transactions to use it to provide financial assistance with your new purchase.Assume I list my home for sale on March 1st. I also go out and start house hunting and applying for pre-approval on a new loan. I reach an agreement to sell my home on April 1st and also reach an agreement to buy a home on April 3rd. The problem is I have nominal amounts of liquid money. I can access my line of credit to pay the deposit and down payment on my new home. When the sale of my previous home closes, the equity line is paid off when the buyer funds the transaction. By taking this step, I have effectively used the equity in my own home to buy the new one and avoided paying high fees and costs with a bridge loan.
Home equity loans, like any other, should not be taken out for just any reason. Obviously, there are costs involved, and your equity cannot be built up overnight. There are certain conditions, though, that will make it more of a good time than others. Here are some things to look for to know when it might be time for you to get a home equity loan.When There Is A Real NeedEach of us, at some time or other, will have a real need for cash – lots of it. This could be the result of an emergency, medical bills, college expenses, sudden repair bills, debt consolidation, and more. The need here often cannot be foreseen, but you still need the money.For Home ProjectsWhen you have a home project that will cost a lot of money. This is probably one of the best investments you can make with the equity in your home. Home renovations or additions can add real value to your home – making it a wise choice. It also increases the equity even more – but you should know that not every project adds value. It is important to check with a Realtor or contractor to discover if it will increase the value in your area.It could even be a good way to get money to prepare your home for sale – especially if you know there will be some large expenses. By getting a home equity loan for the amount you need, with the lowest possible payments, you can save money, and pay it back as soon as the house is sold.Other Needs – Or WantsObviously, not everything could be listed here, but you may also have some other needs. You may have a need to buy another car. Other things, like some of the wants you may have could include a long vacation, a boat, a special trip, a snowmobile or jetskiis. You could even use the money as a down payment to buy a vacation home, too. Really, the sky is the limit – depending on how much money is available. You could even use it for multiple purchases.When The Conditions Are RightThe status of the market is not always such that good terms on loans are available. Interest rates fluctuate every day, and new kinds of home equity loans may offer better deals. If you watch the market some, then you can determine when it is a good time to apply for your home equity loan. If you are not sure exactly how much money you need (or want), you may want to consider getting a home equity line of credit (HELOC). This creates an account for you with a credit limit, and you draw out the money, as you need it. Since you only pay interest on what you actually use, it could work out especially well for your needs.Another thing to consider about the timing of a home equity loan is your own credit rating. Since this will form the basis of your terms, such as interest rate, amount, and time given to repay it, it is important that you make sure it is in the best possible condition first. You can help to improve your own credit rating by making sure your credit report is accurate, paying down your outstanding debt, and possibly destroying extra credit cards to reduce the amount of credit you have.Be sure to look around for a good deal first. There is a lot of difference between what one company offers and the next one. Find the best deal on your home equity loan, or HELOC, and go for it. Soon the money you need, or want, will be in your bank account.
These are 8 of the most commonly asked questions in relation to deciding whether to take out a Home Equity line of credit or a home equity loan!What is a Home Equity Line of Credit?This is often referred to as a HELOC and it is a line of credit that is set with a maximum draw down limit. This line of credit is set up between you and your lender and an amount is agreed upon. This can be up to 80% of the market value on the home less any fees currently outstanding. This equity line can then be drawn out over a set period of time.What are the interest rates charged on an HELOC?Interest rates for Lines of credit are usually variable – this reflects the higher credit risk to the lender. Rates can vary from 11% to 18% depending on the credit score of the applicant.
Do I have to get an appraisal done on my property to qualify?Most lenders have an appraisal required before they will accept an application. Some lenders will only ask for an appraisal where the line of credit being applied for is in excess of $50,000, these are usually credit unions.
Why should I consider a HELOC instead of a Home Equity Loan?If you need an amount of money over a period of time and you are not sure how much then a HELOC makes more sense because you only pay interest on what you borrow. Many borrowers prefer to have the accessabilty to money ‘just in case’ rather than taking a fixed amount out ‘now’ for a pre determined duration as would be the situation with a Home Equity Loan.Is there any collateral required?Yes, is the simple answer. A HELOC and a home equity loan require security. This security is on your home and would be in the form of a lien on your property.If I take out a HELOC what fees could I expect?A HELOC has cheaper fees when it comes to pre payment or settlement – usually around $1,000 on a $150,000 line of credit (about 0.7%) of the total. This compares favorably with a settlement cost of about $2,500 – $5,000 for a home Equity Loan (1.6% -3.2%) – a considerable saving! Other fees though, can be more expensive i.e. appraisal fees. In general a HELOC because of these ‘other fees’ can be slightly more expensive – but not much!
Do I have to have good credit to take out a HELOC?No. If your credit is bad though you will pay more money.Are there any disadvantages to taking out an equity line?Borrowers usually opt for longer term payments than they should! This means that the items purchased tend to last less time than the debt i.e. a new car! The longer the payment term then the ‘more’ money has to be repaid – so it can become an expensive means to gain finance.In addition borrowers with poor credit should be aware that the circumstances that contributed to obtaining a poor credit standing need to be addressed – otherwise if the borrower fails to make repayments there is an added risk of foreclosure!I hope this Equity Line FAQ has been helpful. As with all major financial loans or investments – you should always try and find out as much as you can from a financial adviser, broker or even online.
Home equity lines of credits or HELOC, are revolving credit accounts that are protected by a home’s equity. Homeowners have many options for accessing their home’s equity. Home equity loans are ideal for obtaining a one-time lump sum of cash. On the other hand, if homeowners prefer an open line of credit, which enables them to borrow as needed, a HELOC is
a better option.What is a HELOC?When homeowners apply for a home equity line of credit, they obtain a credit line which uses their home as collateral. There are different types of home equity lines of credits. Some homeowners may obtain limits up to 75% of their home’s appraisal value, whereas others obtain limits that match the amount of equity.The majority of home equity loans have a fixed term of 10 years. During this time, homeowners are able to withdraw funds as needed. Unlike home equity loans, monthly payments are not fixed. Payments are based on the dollar amount borrowed from the home equity line of credit, thus minimum monthly payments will fluctuate.Benefits of a Fixed Rate HELOCIf choosing a home equity line of credit, homeowners may opt for a fixed rate. There are several benefits to choosing a fixed rate line of credit. The obvious reason is predictability.Although monthly payment will fluctuate depending on the amount borrowed, homeowners will never have to worry about an interest rate hike during the 10 year period. Furthermore, a fixed rate line of credit will offer significant long-term savings – especially if rates continue to rise.Many are attracted to adjustable rate lines of credits because of low initial rates. However, the rates on an adjustable line of credit can change daily. Thus, if homeowners borrow a large amount, they may be hit with noticeably higher payments.Disadvantages of a Fixed Rate HELOCAlthough fixed rate home equity lines of credit offer stability and predictability, there are potential drawbacks of this option. For example, if interest rates decrease and remain low, those who choose a fixed rate option will not benefit because their rate is locked for a fixed term. Borrowers can switch from a fixed to an adjustable rate. However, there are penalties for doing so.
Home equity loans are a great way to get the cash you may need – for just about any reason. It could also be enough money to fulfill some of your dreams, too, if you have lived there for some time. Many people are tapping into their home equity in order to do some things they have always wanted to do. Still, though, there are some traps along the way that can be costly to those who are not watching. Here are four things to watch for when you get your home equity line of credit.What Is The Interest Rate?Probably one of the most important things that you need to watch for is the interest rate on the home equity line of credit (HELOC). This will mean that you need to watch the market some and be a little patient. Wait until you see that the interest rate is good. The interest rate may be near that of a first mortgage, but will often be a little higher.Besides the interest rate, though, there will also be what is called a margin. This is an interest rate that is added to the prime rate, and it remains on it for the life of the loan. This figure is variable with each lender, and they often will not reveal it unless they are asked. You need to ask, because this could, in some cases literally double the interest you will be required to pay.Is There A Guaranteed Conversion – If Necessary?Because a home equity line of credit is an adjustable rate loan, you will want to have the protection of being able to convert – if necessary. This means that if the prime rate becomes high, that you will be able to convert your now high interest loan to a fixed rate loan. Oftentimes, adjustable rate loans have no caps on the interest rates, or very limited control over the caps. Currently, there are only about two states that put a cap on it – of about 16 to 18%!What Charges Apply?A home equity loan can come with quite a few charges – or just a couple of them. It really is up to the lender and what they think they might be able to get away with. Many home equity lines of credit do not have any closing costs now, so look around to find one that does not.Other charges may include a charge per check that you write. Another is a charge that will be given you if after a certain period of time you have not withdrawn any more money – often referred to as an inactivity fee. Then there may be an annual fee, or a monthly fee for participation in the program.How Is It To Be Paid For – Amortized?Another thing that you must look into is to find out how the home equity line of credit
loan is to become amortized. You need to know how long is the draw period – the time that you have to withdraw the funds as you need them, and when you start paying on the principal of the loan. Some HELOC’s require a balloon payment for the full amount at the end of the draw period. This would require that you refinance the loan. Other plans require that you start making payments that will fully amortize the amount you borrowed, but the time period to do so may vary.As you can see, there are many different features given by different lenders. You want to make sure that you get several quotes when you go to apply for your home equity line of credit. Then carefully evaluate and compare them in order to find the features you like and that will fit your particular need for your equity.
More than ever, people are looking at their homes as sources for much needed cash in times of difficulty. Regardless if you need to consolidate bills, pay off medical costs, or start a home improvement project, a home equity line of credit can provide a much needed boost.A home equity line of credit, or HELOC as it is also know, can give you a large amount of money at low interest terms. Another important advantage is that a HELOC provides some great tax advantages as well.Home equity lines of credit work in the same way a credit card does, with one catch. More on that in a moment. As a homeowner, you can take out a line of credit on the difference between what your home’s current value is, minus your outstanding loan balance.As a line of credit, you are free to borrow any dollar amount up to the available limit. You can make only the interest payment on the borrowed money if you like, or pay down the outstanding balance.The interest rates on a home equity line of credit rise and fall according to the prime lending rate. This can be both good and bad. In 2004, it was great as the prime rate was at a record low, but since then it has been raised nearly 20 times. So, what was once a really great deal, with interest rates in the very low single digits, has turned around dramatically to where a fixed rate home equity loan is now your best deal.Still, the advantages of only having to pay interest charges on the balance, or just the minimum payment, make home equity liens of credit attractive to many homeowners.The catch I mentioned earlier is the fact that with any home equity loan or line of credit, you’re putting your home up as collateral. You must keep that in mind, but it comes with a responsibility.With that said, a home equity line of credit may be the financial solution you have been looking for.All Rights Reserved Worldwide. Reprint Rights: You may reprint this article as long as you leave all of the links active and do not edit the article in any way.
When it comes to getting money out of the equity in your home for that project, or expense, that you have, a home equity line of credit (HELOC) may be the best way to go. It gives you a number of options that other equity loans do not give, along with the flexibility of being able to make some choices. Here is how you can make a home equity line of credit work for you.A home equity line of credit is a second mortgage (in most cases), and as such, it will add another payment to your bills each month. This means that you need to be careful about how much you borrow. For this reason, you should determine how much of a payment you can afford each month so that it will not be a problem to come up with the money each month. You do not always want to let a lender determine this for you – they cannot lose whether you make the payment or not. Closing fees may or may not apply, but since many lenders have few fees for closing on a HELOC, you should look around and find one that does not.Once you are approved for the loan, you will have an account set up for you, which will have a credit limit. You will be issued either a credit card, or a check book, that gives you access to the funds. Many lenders who give home equity lines of credit require that you make an immediate withdrawal, and some will require each withdrawal after that to also be of a minimum amount.A home equity line of credit gives you the opportunity to withdraw as much money as you need – when you need it. There is also a draw period, which is a period of time that you are allowed to make withdrawals. This could be up to about 11 years – depending on your home equity line of credit terms.During the draw period, you will be paying the interest on the amount of money that you have used so far. The interest that you will be paying will most likely be calculated on a daily basis in order to keep current with your withdrawals. You need to be aware, though, that unless you opt to do otherwise, you are only paying the interest, which means that you will have 100% of the loan to pay during the amortization period – or as a balloon payment at the end of the draw period. If possible, you may want to pay down some of the principal, too, in order to have reduced payments later. You will want, however, to check with the lender to make sure that there is not any early payoff penalty.Certain fees may also apply to your HELOC. Some lenders will charge you with an account maintenance fee. This could result in a monthly charge, an annual charge – or both. There also may be a per withdrawal charge, and possibly even a no activity charge. Since a lender only makes money on a HELOC when you withdraw the money they do not want to see their money not being used – and earning interest for them. By looking around, however, you could find a home equity line of credit that does not have all of these charges associated with them.