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Home Equity Lines of Credit (HELOC)

Article By: Supatra Chowdhury

Your home is a source of pride and accomplishment. Did you know that your home could also be an affordable source of income? As your home appreciates and you make your monthly mortgage payments you build what’s called equity. You can access this equity at attractive interest rates using Home Equity Lines of Credit (HELOC).

There are a number of advantages to securing a home equity line of credit if you need access to cash for a project or another goal. First, a home equity line of credit may be tax-deductible. Also, Home Equity Credit Lines are very flexible. You access your home equity line of credit easily whenever you need it. Following are some of the most popular uses for your Home Equity Line of Credit:

• Education – College tuition can be very expensive and, unfortunately there are not enough scholarships available to fund the educational expenses of every school-bound student. Home equity lines of credit offer an attractive option for funding your child’s education. Access the money, as you need it a pay tuition bills without stress or worry.

• Travel – Traveling on a shoestring budget can be fun, but there are times when you want to go first class. The trip of a lifetime awaits with a home equity line of credit. Join your family for a reunion in Ireland or celebrate your fifth or fiftieth wedding anniversary with an African safari.

• Purchase a car – Buy the car of your dreams – finally, with home equity lines of credit.

• Consolidate bills – The average American carries around $7,000 in credit card debt. At typical interest rates and with minimum payments it could take more than twenty years to bring the balance to zero. Your high interest credit card bills are a thing of the past when you pay them off with a home equity line of credit. Again, the interest may be tax-deductible. Before you consider this option, make sure that you are ready to change your spending habits otherwise you’ll be worse off than when you started; and this time you won’t have your home equity as a safety net.

Home equity lines of credit help you do more of those things that matter to you. They can be a wise financial move as they typically offer lower interest rates than other types of loans. It is important to proceed with caution if you decide on a home equity line of credit as the loan is secured by your home. Learn about the laws in your state and before you sign on the dotted line, make sure that you understand your responsibilities and obligations as a borrower, as well as the lender’s recourse in the event of default.

What should I expect from applying online for Home Equity Lines of Credit?

Here's how the process usually works. First, the lending institution will ask for some basic information about you, your income and the property. They'll probably need your social security number to obtain a copy of your credit report. Then, in only a few seconds, they'll "connect" electronically with your credit report then ask you to identify which loans are directly tied to the property you're financing. After that it's just a matter of seconds until they reach a decision regarding your request for a home loan. Your approval will outline the terms of the Line of Credit, then you'll finish by scheduling your closing right online. You choose the date and time. Up to this point, everything has transpired online. After a few days, one of their Loan Advisors will call you to confirm the information you've entered and confirm your closing date. They'll overnight your closing documents to you prior to your closing appointment so that all you need to do is sign them at closing with a notary public present. Then, within an average of 5 days from signing the documents, you'll get a check for the amount you've requested.

Interest rates for Home Equity Lines of Credit are based on a number of factors:

The most important factor is the total loan-to-value that the equity line will create. The best pricing can be found for Home Equity Lines of Credit using 75% or less of the value of a home, with pricing increases occurring when the total loan exceeds 80%, 90%, 100% and 125% of the value of the home. Many borrowers at 80% or less can obtain rates at the prime rate, while those borrowers using the 125% loan program may pay 13% to 14%.

The loan size also determines the interest rate for many lenders. At one institution, a $7,500 Home Equity Line of Credit carries a rate of 9.75% while a $100,000 line is charged only 8.5%. Some programs also carry introductory teaser rates for the first three or six months, often at 6% or less. Each institution sets its own break points for rate differences, so be sure to investigate what is available in your area.

Another rate factor is based on whether or not the borrower will be taking out funds when the equity line is established, and whether or not the borrower is transferring or consolidating other debt balances. One New York lender, for example, offers a home equity rate at prime for the life of the loan if a borrower is transferring at least $40,000 from another Home Equity Line of Credit. Usually, the lender charges prime plus .75% for the same loan. Many lenders are now also offering free home equity lines at better rates if the borrower is refinancing or purchasing and "piggybacks" the home equity line on top of the first residential mortgage loan.

The last factor affecting rates is based on whether the borrower or the lender will pay closing costs. In today's market, there are some lenders that are offering to pay all closing costs on all of their loan programs. Some lenders give borrowers the option of a lower rate if they pay closing costs, which include appraisal, attorney, recording and other fees that usually range around $600. Other lenders tie closing costs to the loan amount that the borrower takes out at the closing of the loan. If the lender knows the borrower will take out $25,000, for example, then the bank will not mind paying the closing costs because they will make back the costs with interest payments within a few months.

About The Author 

Supatra Chowdhury, is an international research scholar and a part time web content writer. She has written high quality articles for a number of websites and has also done editing and copywriting. Ms Chowdhury works for Freelance Writer organization, and is a contributor to www.super-mortgages.com .