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Savvy HELOC Advice

Find Your Home Equity Line of Credit

Home equity can be the best way to get access to funds, and a home equity line of credit is the best way to tap into the equity. The process of applying for this loan is much easier and less expensive compared with other loans. It's all well and good but how to make the most of your HELOC? Here are some savvy tips to show you how to maximize the benefits on your home equity line of credit.

  • You can avoid many fees when using a HELOC. Dump those lenders who try to assess application, closing, or check-writing fees. There are many fee-free HELOCs out there, so it won't take you long to find a fee-free HELOC. Take your time to shop around for the best HELOC loan.
  • Some HELOC loans enable you to convert the line of credit to a fixed rate. Actually, this is a very valuable feature as variable rates may suddenly rise. If you want to save money in interest payments in the long-term period, this step can be a good idea.
  • Take advantage of using your home equity line of credit for buying gift cards. Through some shopping programs, you may buy discounted gift cards and benefit from a free trial period. Gift cards for the biggest national retailers give really worthwhile discounts up to 20%. All the more so, you can get a gift card absolutely for free when opening a home equity line of credit with certain lenders.
  • One of the best things about home equity lines of credit is that the interest you pay is tax deductible. In view of the fact that HELOCs are technically home loans, federal and state laws enable homeowners to deduct a large portion of the interest paid.

HELOC Borrowers: Crisis Survival Guide

What should HELOC borrowers do, when the housing market experiences serious problems due to financial crisis? Economy slowdown always affects the credit and housing markets. Housing starts rate drop. Home listings go up in many markets. As a rule, areas with strong economies and fast-growing population, like California, Nevada and Florida cause more concerns, as compared to other US states. These areas suffer from a steep price rise.
But even if you live in another state, the housing crisis can catch you over the barrel. Here are some tips for you to make it through hard times with minimal losses.

  • In case you do not currently use your HELOC, keep the account active anyway. It will do you a good turn if you happen to become a victim of mass lay-offs in the times of economy crisis. Or in case you face some unexpected situation. You will most probably get rejected if you try to qualify for a second mortgage (HELOC) after a job loss. Keep your equity home loan as an emergency fund.
  • Another reason to maintain a home equity credit line during economy recession is if you turn out to be in a falling market, your 2nd mortgage increases the chances that your home will be appraised higher.
  • If you have a large balance on your equity line, it is right about the time to make all efforts and pay down your loan balance. Mind that falling housing values come along with falling home equity margins. Remember, your mortgage together with home equity borrowings cost you more than the market value of your home.
  • When the country's economy is unstable and everything changes every minute, converting your variable HELOC rate into a fixed one is a smart move to make. This way you fix the amount of your monthly payments and you will not depend on the changes of the prime rate.

Searching for the Best HELOC: Watch Interest Rate Pitfalls!

When searching for a good home equity line of credit, your greatest concern is the acceptable interest rate. No matter for what purposes you are going to use the credit line, the interest rate is the thing that you will have to pay for a number of years. So, don't be lazy and make a thorough search for the most beneficial equity line, using our quick tips.

1) First of all, you should know what parts the HELOC interest rate is composed of. It consists of an interest depending on the prime rate which is the same for all financial institutions. To this rate many banks add a margin - the rate that the company would like to charge on their benefit. The margin can really double your HELOC payments, so try to find out if the bank applies one and if it is high.

2) Be critical about widely promoted low interest rates for equity credit lines. Remember that they have variable interest, unlike 2nd mortgage loans, and the low percentage can be applicable for a limited period of time (say, 5 months). Very often extra-low interest rates require excellent credit score! Ask the bank about all the details of the credit and think if you are able to handle it. In some cases equity home loans are more suitable, as they offer a fixed amount and a lower interest for it.

3) Try to avoid such unpleasant features as unnecessary transaction fees and penalty charges. Even if you are a reliable payer, there can be transaction fees for cash advances and some closing costs. Investigate all the terms and conditions attached to the home equity line of credit rate. Sometimes people are struck by payments growing in the end of credit term.

Having chosen a beneficial HELOC and being reliable with it, feel free to ask your bank for lower rates and fees!

Benefiting from Your Mortgage and Home Equity

When asked about the difference between a bad and good debt, most people will normally say that all debt is bad. What about mortgage? You get a loan that is tax-deductible and an asset that appreciates over time. That's a bright example of a "good" debt which, if utilized wisely, can yield great returns apart from the place to live.

Research shows only a few homeowners realize they can benefit from their home loan, whether it is first or second mortgage, so they try to pay off their mortgage debt sticking to the policy of responsible financial management. At the same time, financial experts suggest thought-provoking tips on how to maximize the benefits of your mortgage loan and home equity, which might sound very opposite to your prudent ideas.

Tip 1: The savvy advice is, do not strive to make a large mortgage down payment and extra monthly payments to minimize the term of the loan. Instead, use the funds that would go to cover the principle retirement for the purpose of liquid investments. Make the mortgage work for you.

Tip 2: Provide for the funds by means of a minimum down payment and interest only payments. It will prolong the term of the loan, giving you the liquid home equity to operate with.

Tip 3: It doesn't make sense to grow your home equity and keep it illiquid in the home. Remember, equity is subject to the changing housing market - if the equity is idle, it could be highly unprofitable once your home value rises. Separating equity from home and placing it into a cash position protects you in case of a job loss or illness.

Tip 4: Take out a home equity line of credit, or a second mortgage, for purely investment arbitrage purposes. The more equity you've already built up in your property, the more you can borrow on the second mortgage. The problem with most American households is they tend to use second mortgage or HELOC for common needs like medical bills and education.

If your goal is to own your entire home right now, go ahead. But isn't it wiser to ensure your financial safety while still paying the obligations to your lender?

Pros and Cons of Adjustable Rate HELOC Loan

HELOC loans usually come with an adjustable interest rate which fluctuates during the life of the loan. These changes are tied to an index. The prime rate is the most common index for HELOCs. It is well-known and relatively stable. When the prime rate changes, it's usually front-page news, so borrowers won't be surprised when their HELOC interest rate changes too.

Typically, HELOC rates are expressed as the prime rate (the index) plus 2% (the margin).The margin is the percent added or subtracted to the index to determine the actual HELOC interest rate at any given time. It is established at loan approval and remains the same for the life of the loan.

The index rate changes impact on your HELOC rates very quickly. That's why it can be difficult to predict the amount of your monthly payments. Trying to make budgeting easier and avoid sudden interest rate increases, some people switch from adjustable rate HELOCs to fixed rate loans. However, don't hurry to do it now.

During the last years the prime rate has been going down. Two years ago - on June 29, 2006 - the prime rate was 8.25. On October 31, 2007 it reached 7.50. And since April 30, 2008 the prime rate is 5.00. People who chose adjustable interest rate loans have saved hundred dollars on their monthly payments!

As many experts say, the prime rate is likely to drop again at the end of the year due to the problems in the housing market and economy. So do you really want to apply for a new loan with higher interest rates?

Of course, the situation can change down the road, but you can eliminate its negative impact on your budget. Don't pocket the savings on low rates - use them to pay down the principal. When the prime rate goes up, you'll be paying interest on a lower amount of principal.

Home Equity Lines of Credit Tips
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