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HELOC (Home Equity Lines of Credit) and HEL (Home Equity Loans)
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Refinance Rates
Purchase Rates
Refinance Rates,
Refinance Rates
Purchase Rates
Purchase Rates,
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The HELOC (Home Equity Line of Credit) and Home Equity Loans (HEL) are both ways to help you get the most out of the investment you have made in your home.
A home purchase is one of the largest investments any individual is likely to make in their life. But it is also one of the most flexible, wisest investments (depending, of course, on the individuals situation). There might be certain conditions where a shorter term lease, or renting is favorable, but when you lease or rent an apartment, you never actually own anything. One advantage to owning a home, IS, in fact, ownership! And when you own your home, you can do pretty much anything WITH it, including "selling" a small part of it back to the bank, to get money which you can pay back later. Along with basic mortgage rate comparison or possible refinance, both HELOC and HEL are great ways to make your home's equity work for you!
The small part that you are selling back is more "financial" than "physical". As you make payments on your home mortgage, you build up equity. Your equity is simply calculated by taking a general appraisal of your home, and subtracting the remaining principal on your current mortgage (the amount you have left to pay on the loan itself, not including interest over the next YY-number of years).
So, let's say that you own a $250,000.00 home (a current appraised value), and have lived in it long enough that you only owe $100,000.00 on the mortgage. If you have never refinanced or taken out a second loan, you would have the remaining value of your home ($150,000.00) as financial collateral, which you can borrow against and use for whatever you choose.
There are different ways to get this value from your home (including refinancing), but we will discuss 2 in very basic, general terms.
A home purchase is one of the largest investments any individual is likely to make in their life. But it is also one of the most flexible, wisest investments (depending, of course, on the individuals situation). There might be certain conditions where a shorter term lease, or renting is favorable, but when you lease or rent an apartment, you never actually own anything. One advantage to owning a home, IS, in fact, ownership! And when you own your home, you can do pretty much anything WITH it, including "selling" a small part of it back to the bank, to get money which you can pay back later. Along with basic mortgage rate comparison or possible refinance, both HELOC and HEL are great ways to make your home's equity work for you!
The small part that you are selling back is more "financial" than "physical". As you make payments on your home mortgage, you build up equity. Your equity is simply calculated by taking a general appraisal of your home, and subtracting the remaining principal on your current mortgage (the amount you have left to pay on the loan itself, not including interest over the next YY-number of years).
So, let's say that you own a $250,000.00 home (a current appraised value), and have lived in it long enough that you only owe $100,000.00 on the mortgage. If you have never refinanced or taken out a second loan, you would have the remaining value of your home ($150,000.00) as financial collateral, which you can borrow against and use for whatever you choose.
There are different ways to get this value from your home (including refinancing), but we will discuss 2 in very basic, general terms.
Refinance Rates
Purchase Rates
Refinance Rates,
Refinance Rates
Purchase Rates
Purchase Rates,
|
A Home Equity Loan is traditionally thought of as a "lump sum" type of payment to the borrower. The bank helps the borrower determine the amount of equity, and sets certain conditions on the loan, along with a payment schedule according to what the borrowers needs are.
A Home Equity Line of Credit (HELOC), on the other hand, is slightly more complicated. It is pretty rare that a bank will allow 100% or more of your home's total value to be borrowed. They will base your max Loan-to-Value (LTV) ratio around a limit that they will determine based on your credit worthiness (typically up to a certain maximum, ~75-80% of the homes total value), loan needs and purpose, and your overall ability to pay off any amount borrowed. The advantage of a HELOC is that it is a revolving line, and can be used whenever the borrower chooses, and typically for whatever reason. The Line of Credit will then have a certain maximum, based around the home's appraised value ($250,000.00), times their LTV percentage (let's say 80%), subtracted from the balance owed on your current loan(s) combined. So in our example, figuring an 80% maximum LTV, the borrower can potentially have a Line of Credit of (($250,000.00 * .8)-$100,000.00), or, $100,000.00 maximum in their Line of Credit. The borrower only pays interest in money that is currently "out" of this account, and usually there are no maintenance fees or obligation to use the funds at all: in short, it can be there when you need it. Depending on your plan, you can only take this money out within a certain time frame (generally, 10 years), and there may or may not be availability of renewal for the HELOC.
In either case, there may be costs associated with starting the plan to begin with, and you should read and fully understand any loan documents presented to you. Do not sign anything that you do not understand, and ask questions (or atleast note them for future reference) before committing to anything. Do not jump on the first offer without fully understanding the options that you and your potential lender discuss. Consider working with several lenders as well, to compare the best rates possible for your home equity loan or HELOC. Before any credit scores are drawn, be aware that multiple draws against your credit might impact you negatively, so you should ask the lender if they will be checking credit score, and if it might impact your credit rating (sometimes multiple credit checks can impact your score).
Also, watch for teaser rates: while you are reviewing the details of the credit application, make sure you understand all terms and conditions as laid out in front of you. You need to be aware (in advance) of any potential "balloon payments" at the end of the loan term, for example; also there might be hidden fees that you are not aware of. Read carefully, and watch for any indication that your interest rate could change (if you miss a single payment, how high can they put your interest rate?).
There are many different factors to consider when comparing a home equity loan versus a home equity line of credit, so choose wisely and make sure you understand all conditions of your loan. If you already have the best mortgage rates, an additional home equity loan or line of credit is just one option to help use your home's equity for other expenses. It is too easy to research options available online, as well as even find an online lender to work with. It might be more comfortable to work with a local agent, but sometimes you can get better rates online.
Good luck when searching for home equity loan and HELOC options!
A Home Equity Line of Credit (HELOC), on the other hand, is slightly more complicated. It is pretty rare that a bank will allow 100% or more of your home's total value to be borrowed. They will base your max Loan-to-Value (LTV) ratio around a limit that they will determine based on your credit worthiness (typically up to a certain maximum, ~75-80% of the homes total value), loan needs and purpose, and your overall ability to pay off any amount borrowed. The advantage of a HELOC is that it is a revolving line, and can be used whenever the borrower chooses, and typically for whatever reason. The Line of Credit will then have a certain maximum, based around the home's appraised value ($250,000.00), times their LTV percentage (let's say 80%), subtracted from the balance owed on your current loan(s) combined. So in our example, figuring an 80% maximum LTV, the borrower can potentially have a Line of Credit of (($250,000.00 * .8)-$100,000.00), or, $100,000.00 maximum in their Line of Credit. The borrower only pays interest in money that is currently "out" of this account, and usually there are no maintenance fees or obligation to use the funds at all: in short, it can be there when you need it. Depending on your plan, you can only take this money out within a certain time frame (generally, 10 years), and there may or may not be availability of renewal for the HELOC.
In either case, there may be costs associated with starting the plan to begin with, and you should read and fully understand any loan documents presented to you. Do not sign anything that you do not understand, and ask questions (or atleast note them for future reference) before committing to anything. Do not jump on the first offer without fully understanding the options that you and your potential lender discuss. Consider working with several lenders as well, to compare the best rates possible for your home equity loan or HELOC. Before any credit scores are drawn, be aware that multiple draws against your credit might impact you negatively, so you should ask the lender if they will be checking credit score, and if it might impact your credit rating (sometimes multiple credit checks can impact your score).
Also, watch for teaser rates: while you are reviewing the details of the credit application, make sure you understand all terms and conditions as laid out in front of you. You need to be aware (in advance) of any potential "balloon payments" at the end of the loan term, for example; also there might be hidden fees that you are not aware of. Read carefully, and watch for any indication that your interest rate could change (if you miss a single payment, how high can they put your interest rate?).
There are many different factors to consider when comparing a home equity loan versus a home equity line of credit, so choose wisely and make sure you understand all conditions of your loan. If you already have the best mortgage rates, an additional home equity loan or line of credit is just one option to help use your home's equity for other expenses. It is too easy to research options available online, as well as even find an online lender to work with. It might be more comfortable to work with a local agent, but sometimes you can get better rates online.
Good luck when searching for home equity loan and HELOC options!
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