I'm thinking about getting an equity line of credit but I'm afraid because I'm not sure exactly how it works

Answer 1

You can get one for whatever amount of equity you have in your home, If your house is worth 150k and you owe 130k, you can get up to a $20,000 equity line.
If it's an interest only loan DO NOT DO IT. Also some of them are not rate locked, so when they raise rates, your rate goes up too. Mine went from 6.5% to 12.75% in 1 1/2 years. (each time the rates raise, your payment goes up as well) We could hardly make the minimum payment in the end. STEER CLEAR. You're better off trying to get a personal loan.

Answer 2

A home equity line of credit (HELOC) is a closed end line of credit secured by your primary residence. The line allows the borrower to cash out the equity on their house. In most cases, the line is closed which means that as you pay down the line, you are not allowed to redraw as you would for example on a credit card.

The bank takes a second lien behind the existing first trust mortgage.

There are some transactional costs charged to the borrower e.g. an appraisal review (if needed) and other lender and title fees.

Answer 3

HELOCs (Home Equity Lines of Credit) are loans against your property as are second mortgages. A 'lien' against your property is created and recorded with the County Clerk so the 'world' knows that the lender will get paid, usually after the government and then after the holder of the 1st mortgage, if the property is sold, auctioned, foreclosed or transfered to new owners.

Rates for HELOCS and 2nds are usually higher than 1st mortgages.

You can find 'Fixed Rate' loans for 2nds and sometimes for HELOCs.

The higher the CLTV (Combined Loan-to-Value) Ratio, the higher the risk of default, therefore the higher the rate. For example, if you borrow 70% (you have a balance of $50k left on your 1st mortgage [50% LTV -loan-to-value] and get a new loan for 20% [CLTV of 70%] for of your property value worth $100,000, the rate would be lower than if you borrowed 90% CLTV of the $100,000.

Unfortunately, a lot of brokers and lenders gave their Borrowers ARMs (Adjustable Rate Mortgages) during the last couple of years and now all these people who make money providing loans are going back to their past customers to refinance their properties.

Unless one was trying to reestablish their credit or planning to keep the property (generally) less than 5 years, ARMs generally were not a good product since the Fixed Rate loans were at such great rates. The client/borrower's best interest was not the lender/brokers first concern. NOW, these people are going to incurr more costs to refinance and loose what little equity they may have...if any at all...dang

Anyone who obtains a HELOC, 2nd mortgage or 1st mortgage should be concerned, though not scared. If you don't feel comfortable...there is a reason why. You need to learn more...ask questions, read, ask more questions (like you're doing here).

Don't borrow more than you can safely and comfortably afford. Consider your employment and likelyhood that your job is secure (are you plannning to change jobs? are there going to be job cuts/downsizing? is your position in a field that is growing?), current debt, future goals and wishes, your family, your kids, and, most importantly, YOURSELF.

The United States public generally does not have any savings. We are a DEBT Society. It is time to start saving. Most people have ONLY the equity in their property as their savings. PROTECT YOUR EQUITY!!!!

Keep in mind: Nothing is ever for FREE. No Closing Cost loans do have fees and costs, they are just rolled into the new loan. YOU pay for these costs either up front or roll it into the new loan amount. NOTHING IS FOR FREE.

HELOCs are great for emergencies or for items which you want and know you can or will have the money to pay off the new debt within a planned period. BE CAREFUL! These rates are higher.

If you have more concerns ask another question or send me an email.

Elise Altergott, Principal Broker
Elise
Associate Mortgage: http://www.web-mtg.com/?src=answers
Associate Consulting: http://www.ac-fl.com/?src=answers

Answer 4

Fear is due to a lack of knowledge. So educate yourself Just just you would as friend about a good mechanic, hair stylist, etc.. asking for a good mortgage broker. You can get fix or adjustable equity lines at no cost to you with good credit. Before you get an equtiy line set up a budget and follow it first. Do not fall into the trap most people tend to do and that is to pay off debt and charge it up again.

Answer 5

A home equity line is a loan against your home. So be sure you are willing to lose your house if you don't pay your loan. I like it because you can borrow against it like a credit card - paying it down and borrowing. Borrow only for important things - specifically things that will improve the value of your home.
Compare the annual fees and the interest rates. If you are using it for emergency only, you don't want an annual fee.

Answer 6

Ask the bank but don't get it if you don't need it.