Home Equity Line of Credit

Let’s say that you own a house and you have paid off quite a bit on your mortgage, so you have a nice amount of equity in your home. A situation arises where you temporarily need some cash, for example because you want to refinance an expensive credit card or business debt, or you need a downpayment for a property you are looking to buy.

If you are happy with the terms of your current mortgage, you may not want to refinance your primary mortgage in its entirety. But you do need some cash right now.

One of the options is a Home Equity Line of Credit (HELOC). A HELOC is a loan with a relatively low interest rate that uses the equity you have built up in your home as collateral. A HELOC can be a good solution if you are looking for a short-term loan.

HELOC features

A HELOC is a revolving line of credit, similar to a checking line of credit, with the difference that it uses the equity you have built in your home as collateral.

Some of the characteristics of a HELOC include:

• Revolving line of credit; you can take money out, pay if off, and then take money out again

• Variable interest rate, generally slightly higher than that of a regular mortgage (a primary mortgage used to purchase a home)—but lower than the interest rates of most credit cards or personal loans

• Most lenders offer HELOCs for the full equity in the home, as long as the loan amount does not exceed 80% of the total home value

• In a HELOC, interest is calculated daily, and the payment is adjustment month to month. As you pay down your HELOC, your monthly payments become lower.

• Many lenders offer HELOCs with a 10-year maturity date; depending on the type of HELOC you get—at the end of the 10 years, the remaining balance is often converted into a 20-year loan with a fixed interest rate. If there is no balance remaining at the end of the initial 10-year loan period, then the HELOC simply terminates.

• Can be a good solution for someone looking for a short-term loan, for example to refinance debt or to use as a downpayment on another property

The above are to give you an idea of how a HELOC works. If you are thinking about getting a HELOC, please contact us for a detailed loan scenario for your specific situation, as there may also be other options available to you.

All of our real estate loans include:

• Honest advice, we will listen to your situation and goals and recommend the best mortgage options for you

• In-house pre-qualification without affecting your credit score BEFORE submitting your loan application

• Loans can be done in person or remotely over the phone or Zoom

• Digital document signing

• No rejections, we work with our clients until they qualify

Call 310-294-9417 for a free consultation, or self-schedule an appointment online.

HELOC additional information

A HELOC is similar to but not the same as a second mortgage. HELOCs and second mortgages are both loans that use the equity in your home as collateral. Key differences include:

• A HELOC has a variable interest rate, whereas a second mortgage has a fixed interest rate

• A HELOC is a revolving credit line, whereas a second mortgage is a fixed contract one-time loan that you pay off over time

• Often, the lender’s HELOC agreement contains a clause that enables the lender to revoke the continuation of the revolving credit line. This means that, for example, if the value of your home decreases, the lender may decide that, while you can continue to pay down your HELOC over time, you will not be able to borrow additional funds (similar to how a credit card can be cancelled at any time); on the other hand, a second mortgage is a fixed contract whereby a loan amount is disbursed to the borrower one time at the beginning of the loan and the borrower simply pays that money back over time. There is no revolving credit line, and a second mortgage cannot be revoked

• HELOCs usually have slightly lower interest rates than second mortgages

• When you pay down a HELOC over time, your minimum monthly payments also decrease (similar to how monthly payments on a credit card decrease with a lower balance); on the other hand, a second mortgage has a fixed monthly payment that doesn’t change. If you pay more than the minimum monthly payment on a second mortgage, the length of you loan will shorten, but your monthly payments will stay the same.  

As an additional side benefit, at Prosperity Lending, most of our HELOCs go through credit unions. These are usually loans that you can only get through a mortgage broker, and not with the credit union directly. The additional advantage of of getting a HELOC with a credit union through us is that it automatically gives you membership in that credit union, even if you would otherwise not qualify for membership. Such membership often provides additional benefits that could come in handy in the future.

Call 310-294-9417 to schedule a free consultation, or self-schedule an appointment online.

“Alejandro got us a low rate with an unconventional product, which allowed us to reduce our monthly payment as we pay down the principal. I had never heard of a loan that could do that. I would highly recommend him to anyone looking to refinance their home.”

—Tania, Real Estate Investor