Home Equity Lines of Credit (HELOC)
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
very flexible. You access your home equity line of credit easily
whenever you need it. Following are some of the most popular uses
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.
– 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
Interest rates for
Home Equity Lines of Credit
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.
Based on all of these rate factors, it becomes clear that the best
pricing is reserved for the higher end borrower who takes out funds
at closing. A home owner who obtains a $100,000
Home Equity Line of Credit
and takes out at least $25,000 at closing should be able to get an
interest rate at prime for the life of the loan and not have to pay
any closing costs. The borrower who applies for a $7,500 line,
however, may have to pay closing costs and wind up with a rate over
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