Home equity line of credit

skrepkaApril 16, 2008

We are getting close to buying our first house. We are putting 20% down payment.

We want to get a line of credit on the house but don't know what is involved.

Do do this though out mortgage broker or through someone else?

Is it done at the time of closing or after closing?

Do we have to specify the amount we want or is it calculated based on some criteria?

If we don't plan of using it right away, can it just sit there until we need it?

If/when we need to use it, how do we get the money?

How is the interest on amount used calculated? Is it determined when we open the line or the interest at the time we use it?

How is it paid back? Are there common terms or is it individual? Is it repaid in 1 year, 5 years, 10? I have no idea.

If there is anything else that we need to know, but did not ask, please tell us or point to where we can find answeres.

Thanks everyone.

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Most equity lines of credit are based on the value of the home vs. the amount of the mortgage you owe and take into consideration the LTV (loan to value) ratio.

Your best bet is to shop around at banks and financial institutions. Your mortgage broker may or may not offer an equity line of credit; my experience is that they normally don't.

If you're borrowing through a financial institution (such as a credit union or a bank) you may be able to do a bundle offering subject to that institution's lending rules.

    Bookmark   April 16, 2008 at 1:11PM
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tishtoshnm Zone 6/NM

There is an active thread right now about some problems people are having with HELOCs. We have a home equity loan which was obtained by our broker when we financed our house. Rates on home equity loans are fixed but they are higher than HELOCs. Just know that a HELOC's rate is generally variable, meaning your rate can go up and may even go up a lot. If the Fed decides to battle inflation and starts raising interest rates, then your rate will go up to.

At the time we did our loan, our broker said that he would be unable to do anything more than 90% of the home value but banks may even be sheepish about that in the current market. Bankrate.com has many informative articles and may be a good place to start learning more about using your home equity.

    Bookmark   April 16, 2008 at 2:50PM
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Any particular reason why you want to get the heloc? You can always apply for one later if you decide you need it.

    Bookmark   April 16, 2008 at 6:02PM
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I have a fully-secured Line of Credit using stocks and mutual funds which cost nothing to set up, upwards of 10 years ago, I think. There is no maintenance fee and it sits unused most of the time.

I draw against it whenever I want, and the agreement is that I'm required to pay interest only monthly, but can pay more if I choose.

The rate is based at what they call prime, but is more than what the market calls prime ... a month or so ago, my rate would have been 5.25%.

As I have a couple of bank accounts there and use their brokerage arm as a discount broker, I have a feeling from something that was said recently that they're not going to be too worried if I want to borrow more than the amount that would be allowed by the actual collateral that they hold, as I have other assets within their organization.

ole joyful

    Bookmark   April 16, 2008 at 7:33PM
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I was wrong about using the assets in other areas of their institution as collateral ... it's only the assets which have had certificates issued and which are lodged in their safe, under the jurisdiction of the Line of Credit.

The mutual fund managers issue certificates without charge, and when you turn certificates in to their local office ... be sure to get a receipt. I turned one in some time ago and had them make a photocopy, then sign the pc as having been received. Later there was some question as to whether I had it ... or they did.

When I ask my stockbroker to have certificates issued for stocks that I own, there's a substantial fee for each stock - usually $35.00 - 50.00, more often the latter.

The rate that that the lender would charge me on my Line of Credit now is 4.75% ... which is bank prime.

Someone told me the other day that on his Home Equity L O C, he's paying bank prime minus 1% ... so I'm going to ask my lender whether such a rate is available on mine ... and if not, why not?

If they can't offer a better rate, then I ask my friend who his lender is, pay them a visit and ask whether, if my LOC is backed by stocks and mutual funds, am I eligible for bank prime minus 1% ... and if they say that's O.K., then I go back to my current lender and offer that information, seeing what response they may make.

If they can't alter the rate, I have a choice s to whether to continue with them or to take my assets to back an L O C with the other institution.

ole joyful

    Bookmark   June 4, 2008 at 9:16PM
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