Home Equity Line of Credit Definition
HELOC or Home equity line of credit is such a kind of borrowing which is highly secured by the home of the
borrower. The one who is in the lending end, grants the loan amount to the borrower depending on the
borrower’s equity in the house.
The one at the borrowing end will have to choose between two types of HELOC. One of them is the only
interest draw period and the other is the draw period which includes both principal and interest. During the
draw period, the lender allows the borrower to withdraw as much s/he finds it 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.
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
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 which 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.
A 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