Home Equity Line of Credit Rates
Information on Home Equity Line of Credit
Rates Resources
A home equity line of credit, or HELOC, is a secondary
mortgage loan set up as a line of credit that lets homeowners
withdraw funds for a variety of purposes. These mortgage loans
are used to fund sporadic needs such as debt reduction, home
improvements, college expenses, etc.
HELOC's have a withdraw period, wherein the borrower can draw
on the line, and a repayment period, in which the funds must be
repaid. Standard withdrawal periods are five to ten years. On
the other hand, repayment periods are extended - usually ten to
twenty years. The distinction between the two periods is that
borrowers are only obligated to pay interest in the withdrawal
period, whereas the repayment period includes a payment of
interest and principle. Home equity lines of credits vary, and
some require repayment of the entire balance once the initial
withdrawal period ends.
How to Qualify for a Home Equity Line of Credit
To qualify for a HELOC, mortgage lenders look at the
loan-to-value ratio. The majority of home equity lines of
credit require a LTV less than 75%. In other words, if your
mortgage balance is $115,000, and your home is worth $230,000,
the loan-to-value is 50%, and you are eligible for the
loan.
What's more, mortgage lenders have to ascertain that an
applicant can pay back the withdrawal money. To meet the
criteria for a home equity line of credit, the borrower's
debt-to-income ratio, which includes payment for the HELOC,
must be less than 55%.
Home Equity Line of Credit Disclosures
Disclosure statements contain important information about
HELOC's. Terms vary according to plan, and each borrower should
set aside time and review disclosure contents. The home equity
line of credit terms are subject to change. For example, the
interest rate can increase. Additionally, the mortgage lender
can terminate the line if the following occurs:
1. If borrower defaults on repayment
2. If borrower's financial circumstances change
3. If borrower falsified loan documents
4. If the property's value decreases
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