Home Equity Line of Credit (HELOC) Program
HELOC is a revolving form of credit with a variable interest rate, similar to a credit card. The line of credit is tied to the equity in your home. It allows you to borrow and repay funds on an as-needed basis during a specified period of time.
Indications - this program is a good choice for:
- Flexibility: While you’ll be approved for a maximum HELOC amount, you don’t need to use all of it. This makes HELOCs an attractive option for paying for ongoing expenses, as well as a “nice to have” for unforeseen emergencies.
- Replacing the existing mortgage with a new loan doesn’t make sense because the interest rate on the existing mortgage is much lower than current interest rates.
What are the benefits?
- No Existing Mortgage: In general, Home Equity lines are recorded in a second lien position and have higher interest rates than mortgage loans recorded in first lien positions. As such, borrowers that don’t have an existing mortgage may benefit from more suitable finance on a Cash Out Refinance loan program.
- Qualifying and Credit Standards: Home Equity Lines typically require above average credit scores and stable employment income.
- Timeline: Home Equity Lines typically take about 30 days from application to funding.
- Repayment Increase: Payments during the interest-only period are easy on your budget but once they convert to fully amortized payments, the new monthly amount could squeeze your budget.
- Sensitive to the real estate market: A significant decline in home values could cause your lender to reduce or freeze your credit line (during the draw period).
Typical Disqualifying Considerations?
- Optional Interest-only payments: Whether you choose a 3-year or 10-year draw period, typically the first 10 years, you’re only required to pay interest on what you use from the line of credit. This keeps your payments low, freeing up cash for other expenses or goals.
- Lower rates: HELOCs are backed by the equity in your home, which acts as collateral for the debt (in contrast to unsecured debt instruments, like credit cards or some personal loans, which aren’t backed by anything). The presence of collateral makes a loan less risky for a lender. Because of this lower risk, HELOCs and home equity loans tend to have lower rates than these other types of financing.
- Potential tax deduction: If you use the funds from a HELOC to make home improvements, you might be able to deduct the interest on your tax return.
Alternative Programs
