A new type of affordable 15-year mortgage aimed at moderate-income and flawed credit borrowers is getting a tryout by Bank of America and Citigroup.
Six Advantages of HELOCs
Debt has a lousy reputation.Â It's often associated with financial pain and strain.Â But when this bane of your existence exists in the form of a second mortgage, it allows you to purchase some of the good things in life, including a new car, a home renovation, or a set of plane tickets for a vacation.
As much as we like to grumble about it, debt can sometimes be a blessing.Â And if we choose the right kind of second mortgage, such as a home equity line of credit (HELOC), borrowing money doesn't have to cost you an arm and a leg.Â Here's why:
1. No closing costsÂ
If your credit is good, you won't pay any closing costs on your loan.Â That means no application fee, and no closing or appraisal costs.Â If a lender tries to charge you for these things, take your business elsewhere.
2. No fees when using your HELOC
It's common practice for most checking accounts to tack on usage or check-writing fees.Â HELOCs are different.Â You should never have to pay any kind of account maintenance or check-writing fees.Â
3. Low interest rate
The rate on your HELOC is variable and based on the prime rate, which is relatively low by interest rate standards. When you factor in the loan's tax deductibility, you have access to relatively inexpensive money.
4. Caps on rate increasesÂ Â Â
Even if the prime rate jumps, your HELOC should have a Cap on how high it can climb on a quarterly basis.Â Most loans will move up in increments of 0.5 percent or less.Â Stick with a HELOC that has a lifetime rate cap that's within your budget.Â You never know what the market will do, so it's best to be prepared.
5. Converting to a fixed-rate product
Jumps in the prime rate over the past year have made the fixed-term, fixed-rate home equity loan more attractive.Â Most HELOCs allow you to convert to the home equity loan whenever you'd like.Â
6. Pay it off when you like
You should also have the ability to pay off your HELOC whenever you'd like.Â Talk to a loan officer before you close the mortgage, and be certain that there are no fees for paying off your loan early.
Lenders understand that their second mortgages must be attractive to borrowers to compete in the marketplace. That's why they've equipped loan products like the HELOC with so many benefits.Â If you've got good credit, you should be able to take advantage of all the HELOC benefits, and make a bitter pill, like debt, a little easier to swallow.
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