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| Need cash in a hurry? No? Good. Take out a home equity line of credit now for the day that you do.
I can’t tell you how often I get a call from someone saying they need $50,000 by Tuesday. Unless the Tuesday they are talking about is two months away, there is nothing I can do. A mortgage loan generally takes at least six weeks from the day the loan is submitted until it closes and you get your cash. And that is only if everything goes perfectly. If something goes wrong, well….
A home equity line of credit, or HELOC, is a second mortgage on your home. It is like, and it is often confused with. a home equity loan. But the loans are very different. A home equity loan is a loan for a specific amount for a specific period of time. In this regard they are like any other mortgage.
A HELOC is very different. It is more like a credit card than other mortgage loans. Once you are approved, you have a credit line up to a certain amount to tap whenever you want. So if you need cash in a hurry, you just write a check against your credit line. The lender will probably give you some checks to write against the credit line, or maybe even a credit card.
Different lenders offer very different HELOCs, so there’s no telling what the terms will be. Generally, however, if you pay some loan principal back, you will increase your credit balance by that amount and you can borrow against that.
HELOCS usually charge a smaller rate of interest than other mortgage loans. They are usually tagged to an index—the prime rate is typical—with a margin amount added. Although sometimes you can get a margin amount subtracted. I have one lender now, a very big lender, so big they have a branch in Montauk, that is offering a rate of prime less a half a point. So if prime is 6%, your rate would be 5.5%
The costs to get a HELOC vary from lender to lender and program to program, but they are not expensive. HELOCs usually give you a few years where all you have to pay back is interest. After that period, you won’t be allowed to draw any more cash and you must start paying the loan back.
Some benefits of the HELOC are as follows: You get tax advantages that are not available with credit cards. You get no tax deduction with credit card interest. With a home equity line of credit, the interest is usually tax-deductible. Also, your interest rate is lower than with credit cards, so you pay less interest over the life of the loan. HELOCs usually offer you flexibility in your payment options. Lenders often offer interest-only options to help make your payments more flexible. This gives you the option to pay only the interest for a pre-determined amount of time or pay interest plus as much or as little principal as you want. And finally, you get access to large credit limits with a HELOC. Many lenders offer credit lines of up to $500,000.
How to apply? Call me and I’ll do it. The first step is to give me your Social Security number and then I’ll run your credit report. That will tell us what you’ll qualify for. I’ll do some legwork, find the right program, and then collect the rest of your information and apply. It should take about six weeks to close.
Everyone should apply for one of these and have them in place for a rainy day. Don’t wait until the day before you need the cash.
Nick Deane is a Senior Loan Officer with Buyers’ Choice Mortgage Group and can be reached with your mortgage questions at 917 576 6408. Nick also owns, along with his wife Claire Dowling, Nick’s on the Beach in Montauk. Claire is an Associate Real Estate Broker with Pospisil Real Estate in the Plaza in Montauk, and can be reached with your real estate questions at 668 5200. |
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