A great collection of our HELOC news articles that we have been publishing throughout the years. Use the links below to navigate to the article and information that you would like to read more about.
Home Improvement Time - HELOC or Home Equity Loan?
Submitted on June 14, 2006
Summer is everyone's favorite time for reading, traveling, and home improvement projects. A wise way to manage financing the latter is to tap into your accumulated home equity. But before you visit your bank, it's important to decide whether you want to use a home equity loan or a home equity line of credit.
A home equity line of credit-or HELOC-works like a credit card. Moreover, you can access it by using a card, a check, or some other means, depending upon the lending institution's policy. A HELOC is simple to establish and doesn't require the kinds of closing costs that accompany a first mortgage. The lender, in principle, promises to lend you a certain amount of money, and the loan begins the moment you draw any of the available funds. You can use the money as you please, and the interest rate is adjustable. A good choice for a home improvement project, the HELOC is particularly attractive when interest rates are low or in decline.
Rising rates and HELOCs
These days, following a long period of extremely low interest rates, the Federal Reserve is gradually hiking rates. What's more, all indications are that this policy of escalating costs for capital will continue for the foreseeable future. In an environment of higher interest, it often makes more sense to borrow money with a home equity loan, or second mortgage, instead of a HELOC. The benefits are numerous: many of the costs and interest payments are tax deductible; you can pay back the loan over a long period of time; and best of all, the interest rates are fixed, not adjustable.
The attractive home equity loan
With low rates still available (but probably not for long), people embarking on home improvement projects may find the home equity loan to be the most attractive option on the market. Whether you're considering a landscaping makeover, a new roof, or just a few fresh coats of paint, the best tool in your financial toolbox this summer may be the home equity loan.
Home improvement projects improve the quality of your life while you live in your home. At the same time, they are a sound investment for the future, because they add to the market value and equity of your property.
If you've been waiting to improve your home, this long, hot summer may be just the time to make the improvements that will make the long, cold winter more bearable and, potentially, more profitable.
Pay off HELOC with Cash-out Refinancing
Submitted on June 27, 2006
A few years ago, when you opened your home equity line of credit (HELOC), you thought you'd found the perfect financial tool. With a flexible line that you could tap when you needed, it seemed like the ideal way to take care of short-term debts. But every financial tool has its shortcomings, and the HELOC is no different. With the recent climb in the prime rate, you've probably noticed that less and less of your monthly payment is going toward principal. Fear not-a cash-out refinance of your first mortgage could be the answer to your short-term woes.
Did a cold chill run down your spine the last time you checked the interest rate on your home equity line of credit? Borrowers with HELOCs are feeling a little jittery these days because rates are heading in the wrong direction-up. HELOCs are tied to the prime interest rate, which has been traditionally stable until this most recent upturn.
To make matters worse, many HELOCs don't have the caps that you find with the standard Adjustable Rate Mortgage (ARM). ARMs generally have an upper tier to their rates, preventing the borrower from being locked into an absurdly high interest rate. HELOCs don't have that guarantee.
Solutions to rising HELOC rates
All this news may seem unsettling; but there are solutions if you're finding that the payments on your HELOC have become a financial strain. One solution is to transfer your short-term debt onto a long-term, fixed-rate mortgage. Here are a few reasons why a cash-out refinance of your first mortgage could provide you with the relief you need:
- Lower payment: Since first mortgages tend to have lower interest rates than HELOCs, and because you're refinancing to a longer term, your monthly payment may decrease. This may be advantageous if you're going through some short-term financial troubles.
- Less volatility: The best part about a cash-out refinancing is that you can lock in your rate and get a good night's sleep. No need to wonder what the Fed is going to do to the prime rate tomorrow- you're locked in.
- Ability to prepay: Just because you've refinanced, you can still prepay your loan. Simply by increasing your monthly mortgage payment and stipulating that the money goes toward principal, you can whittle away at your mortgage debt.
Most financial experts will tell you that transferring short-term debt into long-term debt isn't a prudent move. However, if you're feeling handcuffed by the rise in the prime rate, paying off your HELOC with a cash- out refinancing might be the realistic decision you need to make.
Shopping for a HELOC
Submitted on July 28, 2006
Although you may have knowledge and experience regarding how to shop for a traditional first or second mortgage, browsing around for a home equity line of credit (or HELOC) is a loan of a different color. The good news is that it's normally a much easier and less costly procedure, with some rather attractive perks.
It's widely believed that good things in life come to those who ask. This especially applies to those who ask for concessions and perks when shopping around for a home equity line of credit. Talk to potential lenders, and compare their willingness to negotiate on such things as application fees, appraisals, and low introductory rates. The lender will often waive some, or all, of the application fees and settlement costs.
Perks of home equity lines of credit
Lenders will also help you avoid settlement costs on standard mortgages. But when doing so, they generally roll them back into the loan, which means that you'll pay for them eventually over time. They may also do so in exchange for charging you a higher rate of interest, which can be a better bargain for the lender than for you. With a HELOC, you should expect some real concessions on settlement costs with no strings attached. But don't forget to ask, because many of the perks are unwritten, and lenders save them for those times when they need help to woo customers. Many lenders will say "yes" in order to keep your business. It always helps to ask.
Here's another tip: Rather than paying for a fresh appraisal, ask if you can use the same appraisal that was done when you first bought your home. Although lenders will normally not let you use "stale" appraisal data for a typical mortgage, they often allow this when issuing a home equity line of credit. Skipping the new appraisal process can save you hundreds of dollars in closing fees.
HELOCs and margins
As you check off items on your shopping list, always make a note of the HELOC margin. The margin is the amount that your lender can tack on to the prime interest rate, to determine the actual interest rate you'll pay after any introductory discounts expire. Get the lender to spell out exactly what the margin is on your particular HELOC. Then you can choose the lender who cuts the best deal, and not worry about any unforeseen surprises.
Follow these tips and you'll find that you won't have to find a loan alone.
Rising Interest Rates? Time to refinance your HELOC
Submitted on September 25, 2006
With interest rates rising, there's no time like the present to get your financial ducks in a row in order to save money. Back when rates were still cheap, home equity lines of credit (HELOCs), with their low introductory adjustable rates, were the preferred way to go. But now that they're becoming pricey compared to other loans, consumers are seeking prudent alternatives.
Just last week, one major news outlet reported that consumers who enjoyed rock bottom introductory rates on HELOCs just a few months ago are now paying double-digit rates. That's because interest rates, in general, have gone up considerably. As introductory adjustable rates on home equity lines of credit expire, the new rates-and their corresponding monthly payments- will kick in. To avoid getting kicked in the seat of the pants (and in the wallet) by your HELOC, you could refinance to a more appropriate equity loan while there's still time.
HELOCs and prepayment penalties
Home equity lines of credit sometimes charge a penalty if you pay them off early; but the fees will, most likely, be offset by the savings you'll gain by switching over to lower fixed rates. If your loan carries prepayment penalties, calculate the amount that you'll need to pay and then compare it to the amount you'll save.
If the penalty is $500, for instance, and you can save $1,000 within the first year by converting to a cheaper fixed-rate second mortgage, you could recoup the price of the penalty in six months' time. Within one year, you'll have made back enough to pay for the penalty, and put an extra $500 into your piggy bank.
Trim the fat off a second mortgage
Also keep in mind that mortgage lenders will often waive certain fees in order to gain or retain your business. If you plan to take out a second mortgage, ask your lender to trim off as many expenses as possible. Trimming the fat from your closing costs can add up to significant savings, at a time when all of us want to do a little belt-tightening.
Converting a HELOC to a fixed rate Home Equity Loan
Submitted on October 04, 2006
Many homeowners who have enjoyed the convenience and savings of a home equity line of credit (HELOC) aren't enjoying the consequences of rising interest rates. As a result, many are now turning to fixed rate equity loans instead. Converting from one to the other is neither a difficult nor expensive process.
During times of low interest, home equity lines of credit offer attractive and competitive adjustable rates. These HELOC loans work in a way that's quite similar to a convenient consumer credit card. But lately the rates they charge are also starting to resemble those of credit cards, making them more of a liability than a perk.
The lure of fixed-rate home equity loans
Borrowers are shifting into fixed rate equity loans by the droves in order to take advantage of interest rates that are still near historic lows. Homeowners who got spoiled in the beginning with popular "teaser" rates on adjustable-rate home equity lines of credit are now beginning to see the other side of the coin, and it's coming as a sudden and burdensome jolt to the household budget. But there's a simple solution to the dilemma, and those who quickly switch to a fixed rate second mortgage to replace a HELOC will be able to breathe a welcome sigh of relief.
Shopping for a second mortgage
When shopping for the best mortgage, compare prices by requesting quotes from several different brokers and mortgage companies. Lenders, also feeling the pressure of higher rates, will compete to make you happy. Let them know that there are better deals elsewhere and that you'll give your business to the company that offers you the most attractive package. Once you find a loan that fits your needs, lock in your rate. Then give yourself a pat on the back. While others watch their HELOC payments rise, you can look forward to predictable rates for years to come.
Cash out and cash in with a HELOC
Submitted on November 07, 2006
A home equity line of credit can give you the flexibility and the cash you need to make improvements to your home. If you make the right improvements, the value of your house will climb. Wouldn't it be satisfying to use equity to create equity?
A home equity line of credit (HELOC) can make financing home repairs easy. It resembles a revolving charge account: once you obtain the loan, you can draw on it, pay it back, and draw on it again.
With home repairs, you seldom need all the cash at once. A HELOC allows you to borrow cash only when you need it, and pay it back as you go.
Keys to HELOCs
HELOCs have a life cycle. They're usually issued for a term of between 5 and 20 years, but most are in effect for about 15 years. That span is divided into two parts: the draw down period and the repayment period. Once you enter the repayment period, you'll no longer be able to draw cash.
Checks, electronic transfers, or a credit card attached to the account are used to get the cash you need.
The payments vary according to the home equity line of credit rate and the outstanding balance. HELOC rates are variable and fluctuate regularly. As always, ask questions and make sure that you understand the terms of your loan before signing on the dotted line.
If you're making improvements in order to sell your home, make sure that you obtain your HELOC before you actually put the house on the market.
Home improvements that pay off
When it comes to home improvements that hold their value, the big four are bathrooms, kitchens, windows, and siding. Bathrooms lead the pack, and sometimes increase the value of the home by more than the cost of the project. But if you spend $1,000 on any one of these items, you can expect the price of your home to increase by at least $890.
Now you know how to use the equity in your home to improve your home's value. Once you obtain your HELOC, pick a project, take a draw, and get started!
Prepare for Unforeseen Disasters with a HELOC
Submitted on November 23, 2006
Life is unpredictable. Disasters strike, often when we least expect it. But while we can't predict when or where misfortune will occur, we can take steps to prepare ourselves for when those moments arrive. A home equity line of credit (HELOC) is a great tool to ensure that you've got the back-up cash when hard rains fall.
The last few years have yielded many heart-wrenching scenes from areas ravaged by hurricanes. For those fortunate enough to have been spared nature's wrath, pictures of people displaced by these storms have reminded us that there are times when you may need access to cash in a hurry.
Enter the home equity line of credit (HELOC), which can be an ideal form of emergency funds for people who simply don't have the luxury of saving for a rainy day fund. Here's what makes the HELOC a more affordable alternative:
A readily available line of credit. A HELOC is different than a fixed-rate home equity loan. Instead of giving you money in a lump sum, a HELOC offers a line of credit, available whenever you need it. You pay no interest on a balance until you actually tap the funds.
You can secure it before you really need it. The beauty of the HELOC is that you can open one up right now. It's a wise idea to get one set up before you're in a crisis. As the Yogis say, "Avoid the danger that has not yet arisen." That way, when the going gets tough, you'll have the cash readily at hand.
Great flexibility and competitive rates. HELOC rates are variable and tied to the prime lending rate. More often than not, this rate remains relatively low, although it has experienced an uptick as of late. The interest paid is also tax-deductible, which is another big benefit. And if you find the rate is climbing to an uncomfortable range, you can always refinance the funds into a first mortgage or a fixed-rate home equity loan.
Nothing can prevent a disaster, but there are steps you can take to ensure that you're ready if one occurs. By securing a flexible HELOC while all is well, you can make life easier if things should happen to take a turn for the worse.
Goodbye HELOC, Hello Mortgage Refinance
Submitted on December 04, 2006
If you need money for home improvement projects, a mortgage refinance may offer a better deal now than a home equity line of credit (HELOC). HELOC rates have risen significantly, so this may be the perfect time to refinance into a new loan, even if it means accepting a slightly higher mortgage rate.
A home equity line of credit (HELOC) is often regarded as the best place to turn for home improvement loans. This was especially true a few years ago, when HELOC rates fell to historic lows. But within the past two years, interest rates have soared, pushing up HELOC rates and sending many borrowers into a panic.
As homeowners now attempt to consolidate their debts and tighten their financial belts, some are perplexed about where to turn for home equity loan alternatives. Because HELOC mortgage rates are adjustable, they continue to rise as prevailing interest rates climb, and many consumers have watched their monthly payments soar. HELOC loans have become a source of ever increasing, nagging debt.
Welcome relief: refinance HELOC
What's a debtor to do? For many, refinancing an existing loan to pay off the stressful HELOC mortgage may be the key to financial stability and peace of mind. By taking advantage of so-called "cash-out refinance" options, it's possible to borrow more but end up owing less.
The cash-out mortgage refinance allows you to borrow more than you need to pay off the old mortgage. As a result, you walk away with a lump sum of extra money in your pocket. For example, if you owe $150,000 on your existing mortgage, you may be able to refinance by borrowing $175,000. That leaves you with $25,000 extra to pay off your high-interest HELOC loans.
You'll probably pay a higher interest rate on a cash-out than you would with a normal mortgage refinance; but, in exchange, you can get a rate that's substantially lower than your HELOC, enabling you to save money.
More than 85 percent of refinanced home loans in 2006 were for amounts that were at least five percent higher than the original loans. Homeowners are borrowing more when they refinance, and many are switching to new mortgage rates that are slightly higher than their old ones. But by using a fixed-rate cash-out strategy to pay off expensive HELOC loans, they wind up gaining significant savings. And who wouldn't want to say hello to that?
The Annual Mortgage Check-up
Submitted on January 19, 2007
As the year comes to a close, it makes sense to re-assess your finances and make sure that you're on track for the future. An important step in this process is examining your mortgage to ensure that you're still getting the best deal possible.
Stick out your financial paperwork and say, "Ahhhh!" It's time for that annual check-up. Thankfully, this check-up doesn't require you to face your weight on that maddeningly accurate doctor's scale, or sit in a cold and drafty little room with an open hospital gown. Actually, it's a mortgage check-up that's in order, and making time for a quick review at year-end may yield some fruitful results.
Your year-end home loan review should examine the most common sources of potential savings: home equity lines of credit (HELOCs) and private mortgage insurance (PMI).
If you have a HELOC, you might be feeling the pressure of rising interest rates. Take a few minutes to research the current rates for fixed first and second mortgages. These rates are still near historic lows, and may be significantly lower than what you're paying on your HELOC. Locking in a low fixed rate now could create significant savings over time.
You have two options for refinancing your HELOC:
- Combine the HELOC with your first mortgage through a refinance home loan.
- Convert the HELOC by itself into a fixed-rate home equity loan.
The best choice for you will probably depend on how your first mortgage interest rate compares to current rates available.
Private Mortgage Insurance
Are you paying PMI every month? Did you know that you could cancel it once your loan balance drops below 80 percent of your home's value? Even if you haven't paid down much of your home loan, a large increase in the property's value could eliminate the need to pay PMI. Find out what your home is worth, and compare this to your loan balance. If the loan balance is less than 80 percent of the home's value, give your bank a call. The lender may need a written appraisal, but your monthly savings from cancelling the PMI will offset this cost down the road.
A straightforward review at year-end keeps your home financing as lean and trim as possible. In other words, you'll have a clean bill of mortgage health, which is just what the doctor ordered.
One Closing, Two Home Mortgage Loans
Submitted on March 26, 2007
Loan closings aren't fun-so why suffer through them more often than necessary? If you're in the process of closing a home mortgage loan, consider simultaneously obtaining a home equity line of credit (HELOC) from the same lender.
A little efficiency in life can go a long way. Since free time seems to come at a premium these days, why not consider killing two birds with one stone using one loan closing to obtain two home financing instruments? Not only will you save time down the road, you'll also realize some compelling benefits.
HELOCs are powerful, versatile, and very popular financial instruments. They function like any other revolving credit account, in that you can take cash withdrawals and make payments as needed. Even better, you can choose not to draw on the account and it won't accrue any interest. Having access to a large sum of cash can be a comforting precautionary measure, particularly if you don't have a liquid fund set aside for emergencies. Other common uses for HELOCs include debt consolidation, big-ticket purchases, college tuition, and home improvement projects, among others.
HELOCs and interest rates
Unlike a conventional mortgage, the HELOC carries a variable rate of interest. While variable rate debt can be riskier, it's a good long-term companion to the fixed-rate debt of your conventional mortgage loan. A fixed rate mortgage insulates you from rate increases, but doesn't give you access to rate decreases. Over a complete cycle of rising and falling rates, the characteristics of the two instruments are complementary. Incidentally, your credit cards also have variable interest, but at rates much higher than a HELOC. This is why HELOCs are often used for debt consolidation purposes.
On a conventional HELOC, the interest rate will be quoted as a margin plus or minus the prime rate. As is true with all mortgages, the best rates are reserved for borrowers with excellent credit. Borrowers with bad credit will be offered somewhat higher rates.
Leveraging the time and energy you put into your first home mortgage loan to close a HELOC at the same time will increase your purchasing power and provide you with access to emergency cash. The other upside is the time you'll save, which is absolutely priceless. And since time is money, saving time also means saving money.
Home Equity Loans: Just the Facts
Submitted on January 14, 2007
If you're planning to fund an upcoming project with your home's equity, don't jump in without knowing the facts. Understanding the key differences between HELOC's and home equity loans makes for more effective decisions.
If Dragnet's Sergeant Joe Friday were to shop for a home equity loan, you could bet that he'd look past the fluff and go straight for the facts. Incorporating the legendary police officer's "just the facts" mentality is your best approach to solving the mystery of home equity borrowing. So put on your detective hat, and flip open that notepad.
HELOC vs. home equity loan
Home equity loans falls into two categories: home equity lines of credit (HELOCs) and home equity loans. Both are secured by a second lien on your property. A HELOC is a revolving credit line, while a home equity loan is a form of closed-end borrowing.
A HELOC allows you to advance cash or make principal payments at your discretion. The interest rate is variable, and minimum payments generally won't reduce the principal balance significantly.
A home equity loan provides a one-time sum of cash. It carries a fixed interest rate and monthly payment. Home equity loans are sometimes called home improvement loans, because they're well suited for fixed budget projects, like remodeling your living space.
Ups and downs of home equity borrowing
The number one advantage of a HELOC is its flexibility. You can access more cash or make principal payments without penalty. The low minimum payments are budget-friendly, as well.
A HELOC's variable interest rate structure exposes you to the risk of rising rates and increasing minimum payments. Also, since the HELOC offers you the option to pay only interest, you could be left with a lump sum due at maturity.
Alternatively, home equity loans amortize with a fixed rate of interest. As a result, you know exactly how much you need to pay monthly until the loan is paid off.
Evaluating the Trade-Off
If you want to tap into your home's equity, research prevailing HELOC rates and compare them to home equity loan rates. Consider how your situation may be affected if rates rise. Then, decide how important the flexibility is to you, and whether the trade-off makes dollars and sense.
The equity borrowing mystery is a tough case to crack, but the investigative style of Sergeant Friday should enable you to find the killer loan.