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Why take out a Home Loan Equity Line of Credit?
Introduction
Home equity loans come in two forms. The first is the closed end or term
loans in the form of lump sum cash against a home as collateral and the
second in the form of "Home Loan Equity Line of Credit" also known as a
home improvement loan or even as HELOC (abbreviation). HELOC's are
offered up to a percentage of the home's equity value and is considered
a good loan option for home owners. This loan is a personal credit
offered in the form of increments with the equity of home owners kept as
collateral. The equity consists of the amount of funds home owners have
invested within their homes for home improvement purposes or to own the
home.
HELOC's are considered to be a "hot" option for short term emergency
financing.
How does it work?
A HELOC is offered around 75-90% of a home's market value minus the
amount a home owner owes on the home. Options are available up to 125
percent of the home value but these loans should not be jumped into
without consulting your financial mortgage advisor.
The lenders look at only the minimal interest payments during the
qualification procedure.
A HELOC allows the home owner to use the credit again and again just
like a typical credit card or a checking account. Once the amount is
repaid, it can be re-used and interest is charged only on the borrowed
amount. Generally, HELOC's have a "draw period" and within this period,
the borrower can use the money.
Here is an Illustration:
Suppose, the total market value of a home is $ 100,000. The lender
approves a line of credit up to the tune of $50,000 as the home owner
already owes $30,000 on his house. The home owner borrows another
$20,000 through HELOC for home improvement purposes. Still, the home
owner is entitled to use $30,000. After a few months, the borrower pays
back $10,000 out of the borrowed $20,000. This would mean that the
borrower owes just $10,000 and would be able to reuse the credit line to
the tune of $40,000.
Why take out a Home Loan Equity Line Of Credit?
Especially, if the home owner is going through a rough patch or needs
finance for home improvements, a home equity loan in the line of credit
is considered to be the best option.
There are many advantages for taking out a HELOC:
High Amount Of Borrowing:
The amount that can be borrowed through is certainly higher due to the
fact that the house is secured against the amount of borrowing. One can
finance a home improvement plan or even a career change without much
difficulty due to the easy availability of cash through HELOC's.
Competitive Market:
One can go around and meet "too many" lenders who are more than happy to
offer the line of credit. The home equity loan market is a really
competitive market. The fees on HELOCS can also be negotiated and
lowered due to the competitive nature of this market. Your Gefen
Financial Corp. mortgage advisor will direct you to the lenders that
make the most sense for your situation.
Low and Flexible Interest Rates:
Interest rates have gone drastically down in recent years and are
comparably lower than most credit cards. As a matter of fact, interest
rates can drop or be lowered by negotiating with lenders due to intense
competition in the home loans market. Interest rates keep fluctuating as
HELOC's have adjustable interest rates. However, interest rates are
based on prime rates and revolve around single digits.
Bad Credit Report, No Problem:
The home loan equity line of credit can, subject to product
availability, be offered even to those even with bad credit reports.
This is because the amount that is offered is released against the
collateral security of the house. Thus, HELOC's are a form of secured
loan.
Largely In Debt, No More:
The home loan equity line of credits is largely used to resolve
situations when a home owner needs quick cash while being largely in
debt, especially credit card debt. In fact, timely repayments can help
you rebuilt one's credit history with the credit bureau.
Constant Need For Money:
A person who needs money for ongoing projects is largely benefitted from
this type of arrangement. Since HELOC's can be used like credit cards,
it resolves the problems faced by those who constantly need money and
also those who are able to re-pay huge sums of money at regular
intervals.
Much Better Than A Credit Card:
HELOC's offer financial help minus the financing charges that are
incurred in a credit card. Moreover, a HELOC can be re-used until the
end of the "draw period", which is generally between 5-10 years
depending on the lender one approaches.
Tax Write-Off:
The interest paid on home equity loan options, especially HELOC's, helps
in writing off taxes.
Re-Payment Options:
If a person wishes to make an interest-only payment which is more than
the current month's minimum payment due to a larger availability of
cash, one can choose to do so. Most Importantly, principal payments and
interest charges are charged only if the amount borrowed is used by the
borrower.
If a person knows to play safe, HELOC's is definitely a boon as the
house is at stake. Timely payments, a secured job, enough savings and
good spending habits can help manage finances without much difficulty.
Availing a HELOC can ease your short term needs for cash or can even
help you to expand your business in a number of ways. One must make sure
that their mortgage advisor goes through the terms of the "Home Loan
Equity Line Of Credit" before signing a contractual agreement. Also, it
is equally important to make sure that one discusses fees, interest
rates, terms and conditions, etc while making a note of the total amount
that has to be paid at the end of the "draw period".
Thus, HELOC's are a boon for home owners needing quick cash without
delay and that too, at low interest rates. HELOC's have been attracting
home owners largely as a good loan option.
View other articles:
Raise your mortgage credit score!
Paying off mortgage points
Housing Bubble Myth
Shopping for a Mortgage Professional?
Mortgage CheckList
IRS on Principal Home Sale Exclusions
Reverse Mortgages
Reverse Mortgages-Estimated Closing Costs
Reverse Mortgages- Using Your Home to Stay at Home (PDF)
It still makes sense to buy vs. rent
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For Further
Information and to get the ball rolling
please call 718-983-9272
extension 11.
Ask for dovid@gefenfinancial.com .
Registered mortgage
brokers nys dept. of banking loans arranged through
third party providers
2164 victory blvd si ny 10314
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