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What is a HELOC loan – How does it work?

What is a HELOC loan?
What is a HELOC loan?

What is a HELOC loan | How does it work?

A home equity line of credit allows homeowners to borrow money against the equity in their home. HELOCs can be structured with a fixed rate, or a floating rate based on an index and margin.  Lenders will create a lien against your home, similar to a first mortgage.  The general idea is to draw funds as needed and make payments only on the amount borrowed.

What is a HELOC loan?
What Is A Heloc Loan?

What is a HELOC?  Simply put, a HELOC operates like a credit card. You can borrow money up to a certain credit limit and then pay back that amount with interest. This option usually comes with rates and terms much better than a credit card.  

How can I use my HELOC cash?  Take funds out of your home equity for renovations, debt consolidation, investments, funding a bill such as an unexpected medical procedure, purchasing a vehicle, funding a child’s college tuition, climbing Mt. Everest, your new boat or RV. 

How long is a HELOC term?  This can vary. It could run for as long as 30 years (often with a 10-year draw period and a 20-year repayment period).  Lenders can usually structure HELOCs as long-term relationships.

How much can I borrow with a HELOC?  The credit limit depends on several things, including your fico score and debt to income ratio. The amount is determined largely by the market value of your property and the amount owed.

What is a HELOC risk? One risk is clear. Because your home is the collateral, failure to make payments could result in the loss of the home.  The lender may have the ability to reduce or freeze your credit line. This typically only happens because of missed payments or big shifts in your equity, but it’s still a risk to consider.

Are there any alternatives to a HELOC?  Yes, the HEL or Home equity loan is one option.  HELOCs and Home Equity Loans (HELs) are both varieties of home equity loans, with some differences between them.

A HELOC is a revolving or open-end line of credit where you can keep withdrawing cash up to a pre-agreed limit.  A HEL is a term loan where the lender pays the borrower a lump sum which must pay it back over a fixed term. Be aware these two products are quite different.  Contact Par4mortgage.com today for more information. We will review which option is better for you.

Another alternative to the HELOC is a cash-out refinance.  With this option you would also borrow against the value of your home but refinance the first mortgage rather than setting up a 2nd lien.  This is usually a good way to consolidate debt or fund the same kinds of major expenses you might pay for with a HELOC.  A cash out refi can sometimes have higher interest rates and costs than the line of credit or rate and term refi. 

Generally, all the other minimum requirements of mortgage or loan eligibility apply. You will need to be a U.S. citizen or resident aged 18 years or more. The lender will run a credit check, which will affect your credit score. You will need to provide certain financial documentation, although less than for a traditional mortgage.  Par 4 Mortgage offers PRIMARY, SECOND HOME and INVESTMENT options.  Fixed rate 2nds.  You chose the repayment terms.  Closed-end 2nd. Standalone mortgage options.

Contact your representative at Par 4 Mortgage to find out, what is a HELOC, and how does it work?  For a full list of ineligible properties visit: https://par4mortgage.com/contact-us-par4mortgage-low-rates-low-cost-loans/ Par 4 Mortgage offers a free mortgage calculator to assist you in determining which loan is best.   https://files.consumerfinance.gov/f/documents/cfpb_heloc-brochure.pdf

What is a HELOC loan? Contact Par 4 Mortgage today to review the pros and cons.