With the average amount of home equity hitting new all-time highs, many homeowners are seeking to discover how they can immediately benefit by having access to their equity. One option which can make a lot of sense for the right borrower is to open a Home Equity Line of Credit (or HELOC) account.
The HELOC is typically a 2nd mortgage loan, which would not require any need to touch the existing 1st mortgage loan already in place. If you have an excellent rate locked in already and are not looking to refinance the existing mortgage, but need to access the equity, then a HELOC is a great place to start.
HELOCs use a home’s value as collateral to allow individuals to access their home’s equity without selling or refinancing their home. A typical HELOC contains a draw period during which the home’s equity can be borrowed against followed by a repayment period where any outstanding balance must be paid back.
How It Works
During the draw period, a HELOC functions like a secured credit card. An individual can take money out as they please and make interest-only or principal and interest payments based on the current balance. Once the draw period ends any remaining balance must be paid during the repayment period. The repayment functions like a traditional mortgage with scheduled monthly payments (normally using a variable rate).
Maximum Line Amount – $500,000
Minimum Line Amount – $10,000
Maximum LTV – 89.99%
Minimum FICO Score – 680
Maximum Debt to Income ratio (DTI): 45%
Primary Residence or Second Home
Minimum Closing Costs
No Initial Draw Requirement
No Early Closure Fee
$75 Annual Fee
*The Interest rate is tied to an index or in this case the prime rate + the margin (Similar to an ARM)