Specific Surrounding HELOC
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.