A home equity line of credit is a type of second mortgage that allows homeowners to borrow money against the equity they have in their home and receive that money as a line of credit. Borrowers can use HELOC funds for a variety of purposes, including home improvements education and the consolidation of high-interest credit card debt for example. Sound a little confusing? We’ll break it down for you.
A HELOC has two phases that separate borrowing and repayment, also known as the draw period and the repayment period. Be aware, however, that you’ll make payments on the loan during both periods.
The first phase, called the draw period, is when your line of credit is open and available for use. During this period, you’ll be allowed to borrow from your line of credit as needed, making minimum payments or possibly interest-only payments on the amount you’ve borrowed. If you reach your limit, you’ll have to pay off some of what you owe before you can continue borrowing. If you want to extend your draw period, you may be able to refinance your HELOC to do so.
Once you reach the end of your draw period, you’ll no longer have access to the HELOC funds and will have to start making full monthly payments that cover both the principal and interest. This is the repayment period. If you’ve been making interest-only payments up to this point, be prepared for your payments to go up, potentially by a lot. The length of both periods will depend on the loan you get. For example, you may decide that a 30-year HELOC, with a 10-year draw period and 20-year repayment period, makes the most sense for you. Typically, lenders won’t allow you to borrow against all the equity you have in your home in order to keep your Loan-to-Value below a certain percentage. This is because lenders want you to have a certain amount of equity in the home, since you’re less likely to default if you could possibly lose the equity you’ve built up. Call a Mortgage Broker to talk about what you are looking to do and see if a HELOC is the right fit for your needs.
Get started with an Edge Home Finance Mortgage Professional.
Copyright ©2023 Edge Home Finance Corporation. All Rights Reserved. Developed by Kmarks, LLC
As prohibited by federal law, we do not engage in business practices that discriminate on the basis of race, color, religion, national origin, sex, marital status, age (provided you have the capacity to enter into a binding contract), because all or part of your income may be derived from any public assistance program, or because you have, in good faith, exercised any right under the Consumer Credit Protection Act. The federal agency that administers our compliance with these federal laws is the Federal Trade Commission, Equal Credit Opportunity, Washington, DC, 20580. Edge Home Finance Corp is licensed mortgage broker in the following states AL, AZ, CO, FL, GA, HI, IL, KS, KY, MA, MO, NC, ND, NH, OH, OK, PA, SC, TN, VA, WA and WI.
Kelli Phelps MLO is licensed in Alabama, Colorado, Florida, and Texas.
The following states require disclosure of licensing information. (If your state is not listed, it does not require a specific license disclosure):
CALIFORNIA – Licensed by the Department of Business Oversight under California Finance Lenders Law
COLORADO – Edge Home Finance Corp, 4530 W 77th St Suite 365 Edina, MN 55435, (763) 219-8484; to check the license status of your mortgage broker, visit http://www.dora.state.co.us/real-estate/index.htm
TEXAS – CONSUMERS WISHING TO FILE A COMPLAINT AGAINST A COMPANY OR A RESIDENTIAL MORTGAGE LOAN ORIGINATOR SHOULD COMPLETE AND SEND A COMPLAINT FORM TO THE TEXAS DEPARTMENT OF SAVINGS AND MORTGAGE LENDING, 2601 NORTH LAMAR, SUITE 201, AUSTIN, TEXAS 78705. COMPLAINT FORMS AND INSTRUCTIONS MAY BE OBTAINED FROM THE DEPARTMENT’S WEBSITE AT WWW.SML.TEXAS.GOV A TOLL-FREE CONSUMER HOTLINE IS AVAILABLE AT 1-877-276-5550.
See if you should refinance your mortgage. Enter the details of your current home loan along with details of a new loan to estimate your savings and see if refinancing is right for you!
