Home Equity Line of Credit Definition
HELOC, or home equity line of credit, is a type of borrowing that is substantially secured by the borrower’s house. The lending party makes the loan amount available to the borrower based on the borrower’s equity in the home. The borrower will have to pick between two types of HELOCs. One is a draw time that just includes interest, and the other is a draw period that includes both principle and interest. During the draw time, the lender permits the borrower to withdraw as much money as he or she deems necessary.
Home Equity Line of Credit Requirements
To receive HELOC, the borrower will have to meet up to the basic requites for this particular loan. The most initial one is that, the equity percentage should be at the least 15% – 20%. Based on this equity percentage, the lender is going to lend. The higher the credit scores of the borrower, the best will it be to them. Minimum suffices almost in the middle of 600. The rates and credit scores are indirectly proportional to each other. If one increases, the other will have to decrease.
For the favour of the lenders, they always lend their money to those whose debt to income ratio is not more than 43%. Lower the debt to income ratio, lower the risk for the lender. Risk is directly proportionate to the ratio. In order to be guaranteed enough on the part of the lender, they are always ready to use their money for those who have a good monthly income. A handsome income will allow the borrower to repay on time and therefore the lender is going to get satisfied.
Timely payments of all kinds of bills in the history will be showing to the lender that s/he is lending in safe hands which might decrease the risk.
Home Equity Line of Credit Rates
The current or latest ongoing rate of HELOC is 4.52%. This rate is of variable nature and are easily subjected to change without any prior notification. The average rate range start varying from 1.799% till 7.99%. For gaining in part of the borrower, s/he should always seek for the best rates which are most competitive in nature. The lenders often set the rates based on different factors. Those are the amount of the loan, the charged fees, APR, the requites of credit and definite subject to availability.
Home Equity Line of Credit Calculator
The perfect value of the borrower’s home and the mortgaged remaining amount decides whether one will qualify for HELOC. The calculator for HELOC will help the borrower to find out the monthly payments in order to pay the loan back to the lender. Also, another calculator decides whether one is eligible for HELOC or not. The payment calculator will require the basic details such as the amount of the loan, the interest, the interest only time period and also the repayment span. The calculator which calculates the eligibility for receiving HELOC requires the latest value of the home, the outstanding balance of mortgage and the credit score.
Click here to check out Home Equity Line of Credit Calculator.
Home Equity Line of Credit Wells Fargo
Wells Fargo is a large credit union which offers HELOC. It allows lessening in principal during the payment within the draw period. The rates that are charged are quite higher and also requires a high credit score like 700 or even more. It allows debt to income ratio to be 43% or lower percent and the loan to value ratio is as high as 80%.
The closing costs are taken well care by the Wells Fargo, i.e. one need not have to bring cash to the lender. In the time span of draw period Wells Fargo offers to its customers that they may convert their variable rate balance to the fixed rates.
Home Equity Line of Credit vs Equity Loan
A man/woman can make use of their own home as two kinds of collateral security. One is HELOC and the other is the Home equity loan. As we all know, HELOC revolves around the lines of credits that includes variable rates of interest. On the other hand, home equity loan provides a fixed and perfect amount as loan including a fixed and a perfect rate of interest.
All the amount is given away to the borrower in lump some all at once in the equity loan but, in HELOC, which is more like a credit card that keeps allowing the borrowers to withdraw money as and when required until the credit limit.
Home Equity Line of Credit on Rental Property
The most popular tool used by multiple real estate investors for drawing on the equity of the rental property. The lenders often finds it best to lend their money to those investors who has equity in their rental property. That might help them receive perfect interest payments and the fees. Not only the lenders, the borrowers also remain in the gainful position while receiving finds against their equity on the rental property that they possess. The cash value will be uprising including the value of the rental property in the market.
Home Equity Line of Credit vs Refinance
The current or the latest mortgaged property needs to get replaced with a brand new mortgage in cash out refinance whereas, the HELOC lets the borrower to keep the latest mortgaged one as it is. Cash out refinance at a stroke offers the whole payment in all, to the borrower. The proceedings of this loan amount are being used to pay off the existing mortgages that also includes closing costs and the payments
which are already pre paid. The funds that are set aside after all the usage are free to use by the borrower wherever the person wants to use.
Property in itself can be utilized in so many ways by the owner, right? Hopefully, you have received a minimum framed idea about HELOC.
Source: Home Equity Line of Credit