HELOC stands for a home equity line of credit. It is sometimes called a Home Equity Loan.
Question #1: How is Home Equity Defined
Equity in a property is the difference between its market value and what you owe on it. For example, a homeowner who has a property worth $150,000 and has a mortgage balance of $120,000 has $30,000 of equity in the property. To access some of this equity for your own use, you could look into taking out a HELOC.
Question #2: Is a HELOC a Mortgage
A HELOC is a mortgage, separate from the one you may already have. Generally, a HELOC is a second mortgage. To get one, you would go through a similar process as you would for a traditional first mortgage. Income, assets, and credit are all considered.
Question #3: What are Common Uses for A HELOC
Common uses for HELOC funds include home improvements and college tuition. Because it is a line of credit, as opposed to a fixed term, a HELOC works more like a credit card. As with a credit card, you are able to purchase items and then pay down the balance over time. As you reduce that balance, that money becomes available to you to use again and again. While they operate in a similar fashion, HELOCs offer two advantages over credit cards. The first is a lower interest rate. The second concerns taxes. Often, the interest paid on a HELOC is tax-deductible. You should consult a tax accountant or advisor for further information regarding the tax deductibility of interest and charges on a HELOC loan.
Question #4: How Is A HELOC Different Than a Home Equity Loan
The HELOC is a line of credit, which is different from a fixed term loan. The fixed term loan has a fixed payment over a set period of time. With a HELOC, the interest rate can fluctuate, so the payment amount can also change. This means that your qualifying income must be high enough that you can make the payments when 100% of the loan balance has been drawn out and the payments are at their highest amount.
Interest rates are also typically higher on HELOCs than they are on fixed-rate mortgages. This is because, in the case of default, the first mortgage lender will get paid back first. This puts more risk on the HELOC lender.
When searching for a “Home Equity Loan”, contact Milend, Inc. Our team of home loan experts would love to work with you and help you with any questions you may have. So don’t wait, call our office today at 855-645-3631 to get started.