HELOC = Home Equity Line of Credit

Do you own a home and now you are thinking about making some home improvements or want to go on a vacation, or want to pay off your credit cards but cant afford to do it?

Someone mentions to you about a HELOC, and recommend you to take out a second loan on your home since you have built so much “equity.” After you obtain the loan, you have the home improvements done, you go on a vacation and pay off all your credit card debt, what now??

Interest rates are increasing and will continue to go up for the remaining of this year, how does this affect you? Well, a HELOC’s interest rates will also fluctuate when the prime rate fluctuates. Now you are stuck with two loans on your home and with the increasing monthly payment you could end up loosing your home.

Always think twice about the purpose and necessity of taking a second loan on your home as it is not always beneficial to obtain a HELOC, specially now that interest rates are constantly going up.

A HELOC’s rate is based on the prime rate. Most consumers will pay 1% over this prime rate. The prime rate is normally 3%+ over the Federal Funds rate. If you have been paying attention, you will know that the Fed has been raising these rates and most likely will continue to do it for the rest of the year. Therefore if the Federal Funds rate was to be at 5% a HELOC rate could end up being at 9% (5% Fed + 3% Prime + 1% = 9%).

(This week the Fed Funds rate was at 4.75)

A better choice for you would be a second loan with a fixed rate or refinancing your first loan for a bigger amount (only on certain situations). I suggest that you do not jump to the first offer you find, always try to find a mortgage broker who is willing to give you options and explain to you the benefits of each option.

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5 Responses to “HELOC = Home Equity Line of Credit”

Interest rates may drop lower on January 22nd, 2008 10:25 pm

[...] you have a HELOC, you will see that you monthly payment may stabilize and may even drop a [...]
Tax Relief for Short Sales & Foreclosures signed by the President (H.R. 3648) : San Jose-Santa Clara County Real Estate UNCENSORED on September 17th, 2008 9:15 am

[...] or a refinanced loan used for substantial improvement of the home. It would not however, apply to home equity loans taken out by borrowers looking to “consolidate debt, pay for vacations, buy a car or to buy a [...]
Interest Rates may Drop Lower : San Jose-Santa Clara County Real Estate UNCENSORED on October 10th, 2008 1:13 pm

[...] you have a HELOC, you will see that you monthly payment may stabilize and may even drop a [...]
Apparent Fraud Spills from Century21 SuCasa to Another Agent in San Jose : San Jose-Santa Clara County Real Estate UNCENSORED on October 10th, 2008 1:29 pm

[...] Curiel, and the brokers, were arranged with Option Arm loans as their first and biggest loan, a second Heloc loan and the third loan coming from Pablo Curiel at an interest rate of 10 percent, with 15 percent [...]
FHA Modernization Act of 2007 passed by the Senate : San Jose-Santa Clara County Real Estate UNCENSORED on November 30th, 2008 1:55 pm

[...] with zero down using a combination of “interest only” loans, “negative arm” loans and “Heloc” [...]