A home equity line of credit is a flexible borrowing option, because it features a revolving line of credit that is secured against your real estate property. Unlike traditional second mortgages, home equity credit lines, also known as a HELOC enable you to withdraw funds as needed rather than receiving a single lump sum amount when the loan closes. A home equity line of credit offers numerous advantages, such as versatile access to funds, lower interest rates in comparison to alternative credit sources, the prospect of enhancing your property’s value, and potential tax deductibility. The Home Equity Mart understands the incredible value of the HELOC and we can introduce you to top-rated lenders and brokers that advertise the lowest home equity credit line rates available.
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What Is a Home Equity Credit Line?
A home equity line of credit (HELOC) is a flexible, variable-rate second mortgage that taps into a portion of your home’s value through a revolving line of credit. Within a specified timeframe, you can utilize, pay down, and reuse the credit line as necessary.
The borrowing capacity of a home equity credit line is contingent upon your home’s value and equity, calculated as your home’s value minus the outstanding balance on your primary mortgage. Since your home acts as collateral, your lender has the right to foreclose in the event of non-repayment.
A home equity line of credit is one of two types of home equity loans secured by the equity in your home. The other is the home equity installment loan. But, the home equity line of credit is becoming more popular than ever for several reasons, For example, a HELOC:
5 Important Benefits of Home Equity Line of Credit
- Offers additional financial security with a home equity line of credit that works exactly like a credit card. It’s a revolving line that allows borrowers to draw repeatedly up to the loan balance.
- Has competitive low interest rates and check writing access to funds.
- Offers stated income and full-doc options, as well as a home equity rate lock feature,
- Requires no advance required at closing.
- Offers potential tax deductibility benefits because home equity interest is tax deductible when you meet the IRS requirements.
In addition to the above-listed benefits, 100% cash out financing is available, and repayment terms are flexible. For the first few years of the loan (the draw period), borrowers have the options of making interest-only payments, which helps keep these loans affordable. There is also a lot of flexibility in what you are allowed to use the money for. For example, HELOCs help borrowers get cash for the down-payment of vacation homes, pay for college and medical expenses, consolidate debts and for home improvements.
The flexibility of being able to draw repeatedly from the line is what makes the HELOC so popular for on-going home improvement projects. “It’s so flexible,” says Kellon Tippett, vice president at BB&T Corp.’s direct retail lending division. “You can pay those costs as they come up without having to go back and reapply, so it’s relatively cheap for the borrower.”
While home equity lines are variable-rate loans, with interest rates tied to a publicly-available index and a fixed lender-specific margin, there are many plans that offer the option of converting the HELOC interest rate into a fixed-rate loan. Be sure to look for this flexible option when shopping for your 2nd mortgage line of credit. Also try to get a credit line that has no application fee, usage fees or account maintenance fees because these fees can make your HELOC expensive to maintain.
The other thing to look for is whether or not your home equity line of credit plan has early termination fees. Early termination fees are best described as the HELOC version of a prepayment penalty—if you pay off and close the line early, you could be subject to penalties that could equal the closing costs the lender waived when you initially got the credit line.
According to Glen Silver, a mortgage advisor with Smart Home Equity Loans, “every homeowner should set up a credit line when refinancing, because it is easy and you never know when you will need it. Learn more about today’s lending requirements for home equity loans and HELOCs.
What Are the Other Options to a Home Equity Line of Credit?
The HELOC is not for everyone or every situation. We listed the 3 most common alternatives to the home equity credit line.
Fixed Home Equity Loan – This 2nd mortgage offers a fixed interest rate with fixed monthly payments because it is a traditional installment loan.
Cash Out Refinance – When first mortgage rate are low, this is the most popular option for qualified borrowers. Homeowners can get cash back while lowering the interest rate on their existing mortgage. When the markets for rates is trending upward, this is not the best option.
Personal Loan – If you need money but do not want to get a loan secured by your house, then the personal loan could be the choice.
When You Are Ready to Apply for Home Equity Credit Lines
At Home Equity Mart, it is a priority to help consumers connect with lending companies that offer the best home equity line of credit. If you are seeking a flexible home equity line of credit account with interest only payments, we will connect you to a home equity lender who can meet your expectations for financing.
Disclosures: Home equity line rates and terms may undergo alterations without prior notice. Approval of home equity credit offers is contingent upon meeting credit approval requirements, and applicants may be presented with credit at elevated rates and varied terms. There are specific restrictions based on Loan-to-Value (LTV) and/or Combined LTV (CLTV). All home equity credit lines must be secured by real estate property and lenders will mandate hazard insurance, with the potential requirement of flood insurance in applicable areas.