Home Equity Line of Credit

A HELOC is a revolving line of credit, similar to a checking line of credit, with the difference that it uses the equity you have built in your home as collateral.

Some of the characteristics of a HELOC include:

• Revolving line of credit; you can take money out, pay if off, and then take money out again

• Variable interest rate, generally slightly higher than that of a regular mortgage (a primary mortgage used to purchase a home)—but lower than the interest rates of most credit cards or personal loans

• Most lenders offer HELOCs for the full equity in the home, as long as the loan amount does not exceed 80% of the total home value

• In a HELOC, interest is calculated daily, and the payment is adjustment month to month. As you pay down your HELOC, your monthly payments become lower.

• Many lenders offer HELOCs with a 10-year maturity date; depending on the type of HELOC you get—at the end of the 10 years, the remaining balance is often converted into a 20-year loan with a fixed interest rate. If there is no balance remaining at the end of the initial 10-year loan period, then the HELOC simply terminates.

• Can be a good solution for someone looking for a short-term loan, for example to refinance debt or to use as a downpayment on another property

The above are to give you an idea of how a HELOC works. If you are thinking about getting a HELOC, please contact us for a detailed loan scenario for your specific situation, as there may also be other options available to you.

Call 310-294-9417 for a free consultation, or self-schedule an appointment online.

HELOC additional information

A HELOC is similar to but not the same as a second mortgage. HELOCs and second mortgages are both loans that use the equity in your home as collateral. Key differences include:

• A HELOC has a variable interest rate, whereas a second mortgage has a fixed interest rate

• A HELOC is a revolving credit line, whereas a second mortgage is a fixed contract one-time loan that you pay off over time

• Often, the lender’s HELOC agreement contains a clause that enables the lender to revoke the continuation of the revolving credit line. This means that, for example, if the value of your home decreases, the lender may decide that, while you can continue to pay down your HELOC over time, you will not be able to borrow additional funds (similar to how a credit card can be cancelled at any time); on the other hand, a second mortgage is a fixed contract whereby a loan amount is disbursed to the borrower one time at the beginning of the loan and the borrower simply pays that money back over time. There is no revolving credit line, and a second mortgage cannot be revoked

• HELOCs usually have slightly lower interest rates than second mortgages

• When you pay down a HELOC over time, your minimum monthly payments also decrease (similar to how monthly payments on a credit card decrease with a lower balance); on the other hand, a second mortgage has a fixed monthly payment that doesn’t change. If you pay more than the minimum monthly payment on a second mortgage, the length of you loan will shorten, but your monthly payments will stay the same.  

Call 310-294-9417 to schedule a free consultation, or self-schedule an appointment online.

“I would highly recommend Alejandro to anyone looking to refinance their home.”

—Tania, Real Estate Investor