Helocs/closed end 2nds
Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home that allows you to borrow against the equity you've built up. Unlike a traditional loan, a HELOC works much like a credit card: you can borrow, repay, and borrow again up to your approved credit limit during the draw period, which typically lasts about 10 years. During this time, you often pay only interest on the amount you've drawn. After the draw period ends, you enter a repayment period (often 10–20 years) where you pay back both principal and interest.
Key features include:
- Variable interest rates: Most HELOCs have rates that can fluctuate with market conditions, though some lenders offer options to fix the rate on a portion of your balance.
- Flexible borrowing: You can access funds as needed, making HELOCs ideal for ongoing expenses like home renovations, education, or debt consolidation.
- Qualification requirements: Lenders typically require you to have at least 10–20% equity in your home, a credit score above 660
Closed-End Second Mortgages (Closed End 2nds) Sometimes called a CES or simply a "home equity loan," is another way to access your home’s equity. Unlike a HELOC, a closed-end second provides a lump sum upfront, which you repay over a fixed term with regular, predictable payments at a fixed interest rate.
Key features include:
- Lump sum disbursement: You receive the entire loan amount at closing, making it ideal for large, one-time expenses.
- Fixed interest rate: Your rate and monthly payments remain the same for the life of the loan, providing predictability and stability.
- Set repayment schedule: Payments are made over a defined period, often 10–30 years, similar to a traditional mortgage.
- No impact on your first mortgage: You can access funds without refinancing your primary mortgage, which is advantageous if your current first mortgage rate is favorable.