Home Equity Line of Credit

If you need to borrow money to pay off debts or make a major purchase, a home equity line of credit (HELOC) can be useful. A HELOC is a form of revolving credit secured by the equity in your home. This is an open ended loan that can be paid down or charged up for the term of the loan, much like a credit card. The interest rate fluctuates (typically monthly). If you would rather not have the rate fluctuates monthly you may want to consider a cash-out refinance where the rate will be fixed for the term of the loan. The important thing is to read the small print of the agreement. Here is such an example for a Texas HELOC;

"Annual Percentage Rate (APR) is variable and subject to change monthly. It is based on the highest Prime Rate published during the preceding billing cycle in The Wall Street Journal Money Rates Table (the "Index") plus a margin. Minimum APR is 4.24%;maximum APR is 18% and is valid for 10 yrs plus one month."

If the above guidelines fits your needs then the HELOC may be the right product for you. If you'd rather pay fees limited to 3% of the loan balance,withdraw up to 80%, and have a fixed rate possibly lower than given above, a simple cash-out refi may be better.

With a HELOC, your lender will approve you for a specific amount of credit - the maximum amount you may borrow at any one time under the plan. In determining your credit limit, your income, debts, credit history and other financial obligations will be reviewed. An appraisal will be required on your home to determine the home's market value. Your credit limit will be based on a percentage of your home's appraised value, which is then subtracted from the balance owed on your existing mortgage.

When you take out a HELOC, you could pay for many of the same expenses as when you financed your original mortgage, such as an application fee, title search, appraisal, attorneys' fees, and points (a percentage of the amount you borrow).

Some HELOCs may a fixed period (5, 10, even 20 years) during which you can borrow money. Typically, you will use special checks or a credit card to draw on your line. You will be required to make a minimum payment each month – usually the interest that accrued during the draw period. However, the interest you pay is usually tax deductible. At the end of your "draw period," you will be required to pay off the loan, making monthly payments on the principal and interest.

Now here is the important part; we of course can do these type of loans and charge a fee for doing so but because we believe in doing the right thing we are here to tell you if you go to a large lending institution they will set up a HELOC in most cases for FREE! Usually there is a requirement that you must withdraw a certain amount of the HELOC at closing yet you just simply deposit these funds back into your HELOC account and use when needed. Remember, this can be a great tool to manage your debt but don't go "spend happy" and put yourself in a bad place where you could very well lose your home.