If you have decided to refinance your mortgage because you are in a difficult financial situation, this could prove to be a sound option for many reasons. Aside from lower monthly payments and a reduced loan term, one of the benefits of refinancing involves consolidating your home equity line of credit (HELOC) and first home mortgage into one payment. Here are the answers to, how does a heloc work and how you can qualify for one to alleviate your home payments.
What Is A Home Equity Line Of Credit?
A HELOC is a line of credit secured by the home that grants you a revolving credit line to use for large expenditures or to merge high-interest-rate debt on other types of loans (e.g. credit card payments). A HELOC typically carries a lower interest rate than other loans. Additionally, the interest can be tax-deductible.
Black Knight, a mortgage data analytics firm, discovered that the proportion of total equity American homeowners have withdrawn attained a four-year low during the first quarter of 2018. Homeowners pulled $63 billion in equity during that quarter via a HELOC or a cash-out refinance. During the third quarter of 2018, 313,744 HELOCs were originated and this marked an 11% drop relative to the year before, per ATTOM Data Solutions.
Variable Interest Rates
An interest rate on a HELOC can vary from one month to the next. This rate is determined from a constant margin and a changing index such as the U.S. Prime Rate. Your home payments may vary should you make extra principal payments. This can assist you with the process of saving on the interest you’re charged and eventually minimize your total debt more rapidly.
According to the personal finance company Bankrate, the average HELOC rate in the United States currently sits at 4.87%, although this figure can reach as high as 21%, depending on your credit rating, employment history, monthly income, debts, and other factors.
Fixed Interest Rates
Certain lending institutions will give you the option to switch a portion of your HELOC’s outstanding variable-rate balance to a fixed rate. Evidently, this option is often significantly more stable and can shield you when interest rates begin to increase. Be sure to also ask your lender if your HELOC carries any additional fees (e.g. application fee, cancellation or early closure fees).
How A HELOC Works
When you take out a HELOC, your home becomes collateral for the line of credit. As you begin to repay the remaining balance on your mortgage, the amount of available credit gets refilled. You get substantial leeway to borrow as much as you need during your draw period (generally 10 years) up to your determined credit limit. Once the draw period is over, the reimbursement period (often 20 years) starts.
How To Qualify For A HELOC
In order to qualify for this type of line of credit, you must have available equity in your home. In other words, the outstanding amount you have to pay for your house should be less than the property’s value. You can usually borrow up to 85% of your home’s value minus the amount that you owe.
Make Refinancing Your Mortgage Easier
You can simplify the mortgage refinancing process by consolidating your debts, organizing your payments, and consulting with experts for advice on the subject.
Reach Out To An Experienced Title Company For More Info On How Does A HELOC Work
Speak to the real estate professionals at Mathis Title Company in Fairfax, Virginia to learn more about the benefits of using a HELOC to refinance your mortgage. We serve multiple towns in the area, including Alexandria, Arlington, Chantilly, and McLean.
Our team at Mathis will guide you through every step of the refinancing process and explain to you in detail why a HELOC is (or isn’t) a sound choice given your financial situation. Robin Mathis is an attorney who holds more than 30 years of experience and who was sworn in to the U.S. Supreme Court. She has performed thousands of closings, both residential and small commercial, and is extremely knowledgeable about both the buyer and seller sides of real estate transactions. Call Mathis Title today at (703) 214-4020 or contact us online for more information about our work.