There are two distinct types of loans that can be taken out as part of a second lien: the Home Equity Line of Credit, and the Closed-End second. This article explains the HELOC and its uses.
The Home Equity Lone of Credit (HELOC) gives owners a second lien on their home to use as a revolving line of credit. Common uses of the HELOC include home improvement projects (kitchen remodel, granny unit build, etc) and debt consolidation (credit cards, car, student loans).
The HELOC also allows borrowers to take equity from an existing property and use to fund a purchase of an investment or rental property.
Unlike the Closed-End Second lien, the HELOC is a bit more flexible in its repayment. Borrowers are able to take money out – and pay money back in – within the terms of the loan.
Typically, the structure of the HELOC loan includes minimum interest-only monthly payments. The most common loan duration is 25 years, with the first 10 years featuring a revolving line of credit, and the final 15 years using a fixed schedule.
The HELOC interest rate is based on a short-term index called “prime”, which is built by adding 3.0% to the federal funds rate. The Federal Reserve has held the federal funds rate at the 0% to 0.25% range – the lowest possible level – since 2008. Currently, that makes the prime rate 3.250%. Prime adjusts monthly.
Currently, rates are low, but changes in the status quo – such as a Federal Reserve decision to raise the federal funds rate – would cause jumps.
1) As a “piggy-back” with a first lien.
The piggy-back allows buyers to take a conventional first mortgage with favorable terms, while concurrently giving them a second lien that provides them with cash ready for use.
2) As a standalone second lien.
This is particularly beneficial to borrowers with existing favorable loan terms, such as a low, fixed interest rate. The borrower might not want to refinance out of such a loan to take out cash, and instead is able to took out a second mortgage to free up the cash.
3) As a first lien.
For people who own their home free and clear, the HELOC can be the best way to free up cash for one-off expenses like home renovation or to pay for college tuition.
Creating an account is fast, easy, secure and FREE! Your account enables you to easily modify your loan application and view the status of your loan anytime day or night.
When you register for a Loan Center account, you can submit a loan application online and the sensitive information that you provide will be transmitted securely.
Kick your feet up while we crunch the numbers. Pre-approval can be done very quickly if you provide a complete and accurate loan application and supporting documentation.
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