Do you need to tap into your homes equity to pay for a home remodeling project or to pay off a few credit cards? A home equity loan (a.k.a. HELOC) is a an adjustable rate loan that is tied to "prime rate" and secured by the equity in your home.
With a home equity loan, you borrow a lump sum of money to be paid back monthly over a set time frame, much like your first mortgage, but your first 10 years are usually interest only payments.
In many instances, unlike your first mortgage, you are issued checks and/or a credit card to utilize any portion of the HELOC you have available.
WHAT DOES THAT MEAN? Here's an example:
You are approved for a $100,000 HELOC, but only take $75,000 out "at the table" or at the time of closing. That leaves you with $25,000 available for future use, should you choose to do so. You can use your checks or credit card issued to you for this purpose at any time!
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The process for a home equity loan is similar to your first mortgage, but in many cases, the documentation needed from you is reduced--so you can relax. The closing costs (often 2-3 percent of the loan amount) are usually lower and, although the interest rateis sometimes higher on a home equity loan, the interest paid is tax deductible, and the payments are interest only for the first few years, offering a lower payment than a fixed-type mortgage. Email: HELOC@my123mortgage.com.
You may qualify for a no closing cost HELOC! To qualify for second mortgage or HELOC, your credit must be in good standing* and you must be able to document your income. An appraisal may be required on your home to determine the home's market value.
HELOCs can be a very valuable source for quick money when you need it, but remember, it is an adjustable tied to a volatile index: prime rate. Prime rate is set by Greenspan and has risen from 4.00 just in August of 2004 to 6.00 percent in June of 2005. Other indeces have moved less than half that.
The good news is, it is still an interest-only payment each month. The bad news is, the payment can go up. We believe the client should make their own choice as to whether a HELOC is good for them. Recently, we have noticed a trend that shows people are shying away from being tied to Prime Rate and instead choose to do an entire over-haul refinance of their current mortgage(s) or simply get a "Fixed-End Second". Below are some details on the Stand-Alone or Fixed-End Seconds. However, you should visit our Interest Only home loan page, where we explain the advantages of an overhaul that essentially gives you more flexibility in cash flow and can reduce your monthly payment dramatically.
A Fixed-End Second Mortgage is attractive to people who have a rate or payment they are comfortable on their first mortgage, but want to cash out on their home without a fluctuating payment like a HELOC. A fixed second (also called a closed-end second) offers more stability--but the rates sometimes shock people. Where first mortgages are in and around 6 to 6.875 percent (depending on the loan amount, etc.), second mortgages are closer to 9 percent. At first glance, this may seem unreasonable. But you must remember that a lender that gives a second mortgage that goes "behind" the first takes a very large risk, thus a higher interest rate.
The bad news is, you do not get an interest only payment on a closed end second. The good news is, you know what your payment is and that it will not change. It will also pay down the principal as you go along (although much like the first mortgage, it takes a few years to make a dent).
Whether you choose a HELOC or a Fixed-End, a second mortgage is a tax write-off, unlike any credit card on the market. It also works nicely in what is called an 80/20 on a purchase where you, the buyer, don't have a down payment or just prefer not to wrap your money up in a down payment. The second mortgage is the 20 percent portion of the 80/20 and eliminates the need for PMI, which is NOT tax-deductable.
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s and Fixed-End Seconds: