What is a HELOC?

couple2Ultimately, a HELOC is a loan provided to a homeowner as a primary mortgage if they own their home outright or as a secondary mortgage if they have an existing mortgage. A home equity line of credit can be most easily described as an equity based credit card. Instead of a predetermined credit limit like a traditional credit card, the credit limit for a HELOC is determined by the lender at the time of the loan based on the home’s existing equity and borrowers’ qualifications.

California Mortgage Advisors Inc. has been helping clients with their financing needs for over 20 years. Our Mortgage Advisors can assist you in selecting the best loan for your purchase or refinance. Our Mortgage Advisors are available at (800) 927-6560 to answer your questions or click here to apply online.

Purpose of a HELOC

Home equity loans or lines are used to make home repairs, renovations, or additions. However, HELOC funds do not have to be used for any specific project or purchase. A HELOC can also be used to purchase a new home.

Credit Limit

The credit limit on a HELOC is usually determined by the loan-to-value on the property as well as borrowers’ income and credit.

Drawing Funds

Drawing HELOC funds is a simple process. Many lending institutions will provide borrowers with access to checks or a debit card connected directly to their line of credit. Additionally, they also provide borrowers with online access to their HELOC account allowing them to execute online transfers from their HELOC directly into their checking account.

Term and Repayment

Like a traditional mortgage, a HELOC is generally for a term of 30 years. However, the main difference is that a HELOC is divided into a draw period and a repayment period. The draw period or borrowing period of a HELOC usually lasts up to ten years. However, this is more of a generalization than an industry standard. During this time, funds may be withdrawn from the account at any time up to the maximum credit limit of the account.

At the end of the draw period, the borrower then enters the repayment period. During this time, a 20 year period, the borrower begins making interest and principal payments calculated in the same way as a traditional mortgage. However, interest rates for a HELOC are calculated in a unique way. The interest rate for any particular HELOC will be calculated by combining the margin and the index (usually the current prime rate).

The most important thing to remember about a HELOC is that it is not like any other type of home loan in form or function. It is extremely fluid in both how the funds from a HELOC can be spent and the exact nature of the repayment structure. This makes it a powerful, yet often confusing financial tool. CMA Mortgage Advisors are available to work with borrowers on terms that help them leverage their HELOC for maximum financial flexibility.

At California Mortgage Advisors Inc., we genuinely believe that we offer our customers the best mortgages in the industry. We have offered a variety of loans since 1993, which means our Mortgage Advisors have successfully matched tens of thousands of borrowers with loans tailored to meet their needs and unique financial situations. If you have any questions, please call (800) 927-6560 to speak with one of our Mortgage Advisors.