A Home Equity Line of Credit (HELOC) is a loan that takes on second lien position, behind a new or existing first mortgage. The “Line of Credit” portion of this loan is due to the fact that, similar to a credit card, it has a revolving function to it. This means that as the balance is paid down, that amount can be re-drawn up to a predetermined limit (credit limit) for a set period if time. This is referred to as the draw period, which is typically 5-10 years. Once the draw period is over, the loan converts to a fixed monthly payment to ensure that the loan is paid in full prior to the expiration of the loan. This is called the payback period, which is typically 10-15 years.
HELOC’s have good advantages:
- Quick access to equity in your home.
- Manageable monthly payment.
- Revolving Line of Credit functionality.
- Lower closing costs than a first mortgage.
- Tax deductability
A HELOC can be a good way to access the equity you may have in your home, without closing a new first mortgage. For purchase transactions, it can also be closed simultaneously with a new first mortgage up to 95% of the purchase price. This is a good choice when your down payment is limited and you would like to avoid mortgage insurance. Pivot Lending Group has robust access to many financial institutions that offer this type of loan. Call today for more information.