Like credit cards backed by your home equity, HELOC loans give you access to revolving lines of credit you can borrow from as much as you need to. They come with a designated draw period for using the cash and a repayment period for paying it back.
Also known as 2nd mortgages, HELOC loans are secured by your home, offering long repayment periods, lots of flexibility, and competitive rates. They're a popular choice for paying for home renovations and repairs, as the interest on them is tax-deductible up to a specific amount when used to renovate your home.
In this article, we'll review all you need to know about HELOC loans in Polk County, Florida, including how they work and their benefits, so you can decide whether they suit your needs.
What is a HELOC?
A HELOC is a secured loan where your house acts as collateral, meaning your lender can take it if you default. Because their interests tend to be much lower than those of other home financing options, they're a popular alternative for homeowners who want to consolidate credit card debt or finance significant expenses, like home improvements.
Sounds a little confusing? Let's break it down for you.
How HELOC Loans Work
HELOC loans usually come with two phases that differentiate borrowing and repayment, commonly known as the draw and repayment period. However, keep in mind that you'll make payments on your loan during both periods.
The Draw Period
During the first phase, you can borrow as much as you want and whenever you want, making minimum or interest-only payments on the cash you've borrowed. It's worth noting that borrowers are only allowed to take up to a predefined amount, similar to how credit cards work.
Generally, the maximum amount of money your credit line can hold depends on several factors, such as your credit score, employment situation, and the amount of equity you have in your property. If you hit your limit, you'll have to repay some of your loan amounts before you can be allowed to borrow again.
HELOC loans typically have variable interest rates, which means your rate will fluctuate depending on a prime benchmark rate. Here, your interest rate will act as the prime rate, alongside a margin, set by your lender and determined depending on your creditworthiness.
Fixed-rate HELOC loans or rate-lock choices are available, but they might come with additional fees or higher starting rates than traditional variable-rate HELOCs.
Sometimes, a HELOC loan can be an interest-only home equity loan, allowing you to make interest-only payments during the first phase. Experts usually recommend making payments toward your principal during the draw period to minimize your monthly payment when the payment stage reaches and eventually pay less interest.
Once you reach this period, you'll no longer have access to your funds and will have to make total payments to cover the interest and the principal. The length of both periods generally depends on your loan type. For instance, you may decide that a 30-year model, with a 20-year repayment period and 10-year draw period, works best for you.
Note that most lenders won't allow you to borrow money against all of your home's appraised value to keep your loan-to-value ratio below a specific amount. This is mainly because they want you to have a certain percentage of equity in the house since borrowers are less likely to default if they could end up losing the equity they've built up.
How it Can Work Like a Credit Card
When it comes to financial stability, planning is crucial. Having an open line of credit can be an essential tool. It acts as a cash insurance policy, which gives you financial flexibility whenever you need it, at a nominal cost of securing capital.
Here's how HELOCs work like credit cards.
You only pay money on the interest that you borrow
Like credit cards, you'll only have to pay money on the interest you borrow. This is very different from other home equity financing alternatives where you'd have to take out and repay the entire loan, irrespective of whether or not you use it.
This flexibility makes HELOC loans perfect for projects for which you're yet to know the amount of money you'll have to spend. You can use a large amount of funding whenever you need it, but you won't be forced to pay interest on any cash you don't use.
You can use the funds for anything
Just like credit cards, you can use the money from your HELOC loan for whatever you want. Most homeowners use HELOC loans to start a business, consolidate debt, pay medical expenses, and fund home improvements.
Homeowners who use HELOCs for home repairs and improvements may get a tax benefit. You can generally deduct any interest paid on your home equity or HELOC loan if you use it to buy, build, repair, or improve the property that secures the loan. You can also get the same benefits when using home equity loans for renovations.
Lower interest rates
Although the exact interest rate will depend on your FICO score, HELOC loans typically have lower rates than personal loans. As of August 2022, the average $30,000 HELOC loan rate is about 6.5%. On the other hand, the current average interest rate for personal loans is about 8.73%.
Remember, HELOC loans are variable-rate products, so you should expect their rates to fluctuate over time. However, even when their rates rise, they're still lower than most personal and home equity loans.
Allows you to draw as much as you please
With their flexibility, HELOC loans allow you to draw as much as possible. This is favorable, especially if you aren't sure how much your project will eventually cost.
So, if the investment ends up being under budget, you don't have to stress yourself about paying more than the required amount in interest.
75-15 HELOC for Condos in Florida
When you have enough money to purchase a home, such as a condo outright, it might seem like an easy decision to make. You get to avoid finance charges and free up cash in your budget that you'd have otherwise devoted to your loan payment.
And if you notice you need liquidity down the road, the decision to sell your condo may not look as easy and plentiful in retrospect. Luckily, borrowers can take out a mortgage against their condo and finance it like a loan.
If you're not ready to finance your condo's entire value, you may consider opting for home equity lines of credit. These loans work similarly to credit cards, offering you a source of credit that you can use anytime you like.
With 75-15 HELOC loans, there's no scrutiny on the number of funds directed to reserves, and lenders don't care about the number of owner-occupied and investors. Moreover, the fidelity bond coverage doesn't have to be verified when condo insurance is reviewed.
Borrowers enjoy 75% maximum financing on a first mortgage and 90% combined financing on a first and second mortgage for a primary residence. That's why HELOC loans are essential for condos in Florida.
Generally, these loans are:
Great for Divorces
The good thing about HELOC loans is that you'll be able to leave the primary mortgage intact while tapping into the required equity. When you divorce, the court could decide that your spouse is entitled to half of the family home's existing equity.
For instance, if your home's value is $1,250,000 and the outstanding mortgage balance is $500,000, the total shared equity is $750,000. The court could tell you that you're both entitled to $375,000 of that. While this seems equitable, getting that $375,000 in cash can be challenging.
This is because by selling the home, you could end up losing about 10% to commissions and other charges. And if you decide to do a cash-out refinance, you might double your rate from 3% to 6%. Your best bet here is to turn to HELOC loans. This second mortgage enables you to tap into up to 100% of the family home's value.
Plus, some lenders provide the option to lock in your rate on your outstanding balance after closing to protect you from rising rates after piling up a balance. Although this alternative isn't always available and may feature additional fees and a much higher initial interest rate, it can offer more stability, especially in a rising-rate environment like ours.
Great for Home Improvements
HELOC is based on current value, not future value, like a renovation loan. There are also low to no closing costs, not to mention flexibility in terms of borrowing and repaying the money, making them better than other financial assistance programs.
If you were to remodel slowly over time, you wouldn't want to go for an option that will make you start paying for the funds from day one. For instance, perhaps you want to redo your bathroom for $35,000, then wait for 6 months before renovating your kitchen for another $35,000.
With a traditional home loan, such as a cash-out refinance of the first mortgage, you'd immediately start paying off the interest on $70,000. With a HELOC loan, on the other hand, you'd use $35,000 for the bathroom without adding another $35,000 to the balance until 6 months later. This means you'll save about $100 monthly in interest for that period.
Remember, some home improvements are more valuable than others. Although you may be convinced that a complete kitchen remodeling will give you a dollar-for-dollar return, that's not always the case.
You'll likely receive more bang for your buck with renovations that widen your home's square footage, like finishing your basement. You can also get good returns by improving your condo's exterior and upgrading your landscaping to increase curb appeal.
Other benefits of using 75-15 HELOC loans for condos in Florida include:
Looking at the benefits mentioned above, it's clear why most homebuyers prefer HELOC loans for condos to refinancing their homes. The first mortgage will cover 75% of the buying price, and the remaining 10% is for your down payment on the property.
If you're searching for a condo, but it's way beyond your price range, going for a HELOC can help ease upfront costs.
Top 5 Places to Get Ice Cream in Polk County, Florida
There's one good thing about the constant hot climatic condition in Polk County, and that's the opportunity to indulge in frozen treats. With a wide range of enticing flavors and creamy textures, you will find unique ice cream shops that will make your heart explode with delight.
From innovative dessert joints to old-fashioned parlors, read on to find the top 5 places to get ice cream in Polk County.
Andy's Frozen Custard
Andy Frozen Custard is a series of American Frozen Custard stores located in different parts of the country, including Polk County. They specialize in making frozen custard-based desserts. The restaurant's headquarters is in Springfield, Missouri, where Andy Kuntz runs.
Andy's Frozen Custard has got you covered if you've got a sweet tooth that's always yearning for something new. Some of its new summer options include the starring peaches, Key Lime Pie Concrete, Peach Dream Concrete, malt, and crème caramel blended with vanilla custard.
Bruster's Ice Cream
During your stay in Polk County, you can't afford to miss tasting Bruster's freshly made ice cream. They boast a wide range of flavors and serve milkshakes, pies, cakes, frozen yogurt, and much more.
As a bonus, Buster's Ice Cream gives free 'doggie sundaes' to dogs and free baby cones to kids under 40". So, feel free to bring your whole family for some Bruster's fun!
Cold Stone Creamery
Cold Stone Creamery are well known for serving up the finest and freshest cakes, smoothies, shakes, and ice cream creations. If you're yet to have a Cold Stone creation, it's time you do yourself a favor and get some Cold Stone ice cream soon.
You'll be dazzled by the fantastic choices at Cold Stone, from ice cream flavors and mix-ins to sundaes and bowls.
Ginther's Swirls Ice Cream
A small family-owned business situated at 11036 International Drive, this ice cream stand boasts a flavorful punch. Soft-serve in many classic flavors that can be sprinkled, topped, flavorbusted, or turned into malts, milkshakes, and sundaes.
Aside from classics, they serve hand-scooped ice cream in about 10 popular tasty flavors, including Salty Caramel Peanut, Butter Pecan, Mint Chocolate Chip, and Cookies N Cream.
Flint's Twistee Treat
A Central Florida tradition situated at 6310 International Dr., Flint's Twistee Treat is sure to satisfy the kid in you.
Shaped like a vanilla cone, it's hard to miss this old-fashioned walk-up ice cream shop. The treats here are also available in sugar-free and fat-free varieties. So, there's no need to feel guilty when visiting this landmark.
The place is open till 11 PM. So, you can play some putt-putt with your family at the Congo River Golf and then head over to Flint's Twistee Treat for a treat of the twisty variety.
HELOC loans in Polk County are viable options for disciplined homeowners who want to capitalize on their home's equity. They have the most flexibility, especially regarding the amount you can receive and when you can repay it.
However, home equity lines of credit also come with risks - you must put your property up as collateral, meaning your house could be at risk for foreclosure if you don't make the payments. So, when considering HELOC loans, think carefully about the potential risks, your financial habits, and whether or not it's the best fit for your financial needs.