Home Equity Lines of Credit (aka HELOCs) have become a common discussion topic when it comes to access to home equity. Many, if not most, individuals with a considerable amount of home equity have thought about taking one out at one time or another.
HELOCs allow a homeowner to borrow against the equity in their home. A HELOC functions extremely similar to that of a credit card. In fact, you can think of a HELOC as a secured credit card that allows for lower interest rates and a higher maximum line of credit.
The process of qualifying for a HELOC can vary greatly depending on the lender and the specific loan product selected. Some HELOCs require limited paperwork whereas others require a full underwrite similar to a refinance. The interest rates for HELOCs are tied to the prime rate plus a small fixed margin for the term of the loan.
The term is variable for the first 10 years but then converts to a fully amortized fixed term for the remaining 20 years (assuming a 30-year term). During the first 10 years, the payment is calculated on an interest only basis, which provides some payment relief.
Another benefit of HELOCs is that they are not as standardized as other mortgage loans, which means they are easier to qualify for when it comes to financial documentation requirements from a borrower.
Every HELOC product is going to have some unique factors that make it more appealing for your specific needs. For example, some HELOCs require that a minimum draw be taken at closing. Some HELOCs require that a minimum balance be carried at all times. Some HELOCs have a ‘lock out’ period after the initial draw, meaning you can’t borrow more for two or three months after opening the account.
HELOCs come with a variety of unique features and flexibility. A reputable mortgage lender will have access to multiple different HELOC products and be able to discuss the different options to help you determine which is the best for your needs.
If you have any questions give us a call at (760)930-0569. One of our experienced Loan Originators would be happy to help.
