What is a HELOC?

A HELOC or a home equity line of credit is a revolving line of credit that utilizes your home equity as collateral. The easiest way to understand how a HELOC works is to consider it like a credit card - you get a line of credit with a limit, and you make payments based on how much you draw against it.  Much like with a credit card, you have a credit limit, and you pay based on your balance, a HELOC works the same way, with some key differences.  Those differences?

A HELOC comes with a "draw" period, which is usually 3-5 years when you'll have access to the funds on your credit line.  With rates based on the "prime rate" (similar to credit cards, but usually much, much lower!), you have options to pay the balance down OR make interest-only payments on the money you borrow.

HELOCs offer some of the most borrower-friendly repayment terms of any loan product, especially for borrowers with good credit and a large amount of equity in their home.

beautiful-house.jpg

Who is eligible for a HELOC?

To qualify for a HELOC, you must be a homeowner who has built up equity in your property. Equity is the difference between the value of your house and the amount of money you owe on your mortgage. In addition, you must have relatively good credit to qualify.  At Catalyst Mortgage, we can lend up to 90% of a home's value with a HELOC.

What are the benefits of a HELOC?

One of the biggest advantages of a HELOC is the flexibility that it offers as a loan product. HELOCs give borrowers the ability to access cash in a revolving line of credit, which means that the funds can be used and repaid as needed. This provides an ongoing source of funds that can be helpful for unpredictable expenses. Other benefits of HELOCs include lower interest rates than credit cards or personal loans, the ability to borrow large sums of money over time, potential tax deductions and access to funds without selling your home.  Consider the following comparisons:

$40,000 Credit Card VS $40,000 Personal Loan VS $40,000 HELOC funds

Credit Card: $40,000, at 25% interest, with a minimum payment calculation of interest + 1% of balance.  Your minimum monthly payment:  $1,233

Personal Loan: $40,000, at 15% interest, with a 5 year repayment term.  Your monthly payment: $951

HELOC: $40,000 with a 7.895% APR.  Your minimum (interest-only) monthly payment: $278 (PS:  That savings can be used to pay down the debt a whole lot faster!!)

What are the requirements for a HELOC?

The requirements for a HELOC are similar to other types of mortgages. We'll review your credit score, income, and the equity in your home. Some common requirements for a HELOC include:

    • Good credit (typically a minimum  620 FICO)
    • Appraisal of the property (many of our products qualify for an AVM - no need for a full appraisal!)
    • We lend up to 90% of your home value!
    • Proof of income (we have alternative income documentation programs available)

 

Is a HELOC the same thing as a HELOAN?

HELOANs are Home Equity Loans.  They often differ from a HELOC in a few ways.  Most HELOAN products are fixed rate, fully amortized loans.  This means you cannot draw, repay, and redraw, funds.  You borrow an amount, get that amount at closing, and then begin repaying the loan, just as you would with a first mortgage.  Catalyst Mortgage offers HELOANs with very competitive terms - you can talk with your loan officer about which product is best for your situation.

 

It is important to understand all the requirements and benefits of a HELOC before applying to ensure that it is the right loan product for you. Contact Catalyst Mortgage today to see if you qualify for a HELOC loan.