According to the real estate data firm ATTOM, most mortgaged residential properties in the US were considered equity-rich in the second quarter of 2022. This meant other home loans and mortgages covered no more than half of the property's value.
The cash-out refinancing was the most popular way to convert equity into cash; however, higher mortgage rates pushed the products out. These days, most people prefer HELOC loans because of several benefits we'll discuss in later segments.
What's a HELOC loan?
A HELOC loan works like a credit card and is secured by your house. The loan provides you access to a line of credit you can draw upon as needed for various purposes. These may include debt consolidation, home improvements, etc.
HELOC loans are flexible and have a relatively lower interest than other debt products, making the loan a popular option for homeowners requiring funding.
You can continuously tap into the revolving line of credit until you reach the credit limit. You'll have access to the credit line and can borrow as much cash as possible.
Additionally, HELOC loans have lower closing costs. Plus, borrowers only pay interest on what they spend, which makes HELOC loans different from installment loans, where you receive the loan applied for in a lump sum. Examples of such loans are personal or home equity loans.
More about HELOC loans:
Traditionally, HELOC loans work with a 30-year model where borrowers have a 10-year draw period where they can draw money for use. Then, the borrowers spend the next 20 years repaying whatever amount they used during the 10 years. However, you should note that there are different draw and repayment periods.
During the draw period, those with interest-only HELOC loans must make payments covering the interest, not the principal. Borrowers begin full interest and principal payments during the repayment period.
However, most experts advise borrowers to make repayments on their principal in the draw period whenever possible to reduce the monthly payments made during the 20-year repayment period.
Pay for what you spend
HELOC loans are like credit cards since they allow borrowers to pay for what they spend plus the interest, which is different from other loans. Other loans require you to pay back the entire loan plus interest, even if you didn't spend the money.
This feature makes HELOC loans great for borrowers who don't know how much money they'll need for a project. The loans provide eligible borrowers with a considerable amount of funding they can use when needed without paying interest for money they don't end up using.
Lower interest rates
Your credit score determines your interest rates. Individuals with higher scores get lower interest rates, while those with lower ones get higher interest rates. HELOC loans have lower interest rates than personal and credit card loans. As of August 2022, the average rate is 6.5 % for a $30000 HELOC loan, which is significantly lower than most loans.
HELOC loans are variable-rate products. This means their rates will fluctuate with time. However, their rates are lower than personal loans and credit cards even when they rise. According to the federal reserve, credit cards have 15.13 % as the average APR, while the average interest rate for personal loans is 8.73 %.
Tax deductible interest
Any interest charged on a home equity line of credit (HELOC) loan is tax deductible if borrowers use the money to fund any renovations in the home. The commonly used phrase in the industry is "build, buy, or substantially improve." Borrowers should use the HELOC loan on the property that sourced it for the money to be deductible.
Taxpayers only deduct interest reaching $ 750000 for residential loans or $375000 for married taxpayers filing separately. This includes residential debts like HELOCs and mortgages. Older mortgages are covered under the $1 million limit used previously (or $ 500000 for married taxpayers filing separately.
Use the money on anything
You could use money from HELOC loans for expenses similar to personal loans or credit cards. Typical uses include home improvements (you can get a tax benefit), debt consolidation, paying for medical expenses, and starting a business.
Various HELOC lenders provide introductory offers like lower interest rates for a specified period, waived fees, etc. These are meant to attract more customers. You shouldn't let the absence or presence of offers dictate how you choose your HELOC lender.
However, these offers could help you save some cash. You should shop around and asses multiple lenders, and compare their fees and rates before deciding which lender you should work with.
HELOC loans provide large loan amounts because your home acts as collateral. However, this means the lender can seize your home if you default on payments. As such, the loans tend to offer more money for borrowers than other loans. The amount of cash you can borrow depends on your equity in the home.
Precise borrowing limits vary depending on various factors, including income, credit score, and the lender. Most lenders require borrowers to have an 80 % loan-to-value ratio. This means all debts your home secures, including the HELOC you plan to take, and your primary mortgage should not exceed 80 % of the home's value.
75-15 HELOC for condos in Florida
Lenders consider HELOC loans second mortgages and can use them to finance purchases. For instance, you could combine your primary mortgage at 75 % with a HELOC loan for 15 % and make a 10 % downpayment to purchase a primary residence. You can use the 75-15 HELOC loan to purchase condos in Florida.
Lenders categorize HELOC loans as low-risk loans. They require a limited condo review as opposed to a full review. Condos underwritten under limited review programs are more likely to be approved.
For instance, in south Florida, 10 % (or less) of loans requested under full review get approved, which is why borrowers tend to choose limited-review condo loans like HELOC. Borrowers should use the loan to buy second homes or primary residences, and they must meet LTV (Loan-to-value) ratios.
Other benefits include:
These reasons make HELOC perfect for condos in Florida because it makes the process easier. Additionally, it involves a limited condo questionnaire rather than a full one.
HELOC for divorces
Divorce is quite painful and stressful in various ways. Choosing a way to pay out your spouse from your home equity makes it more challenging. For instance, you wouldn't want to sell your house with a 2-3 % mortgage rate, pay the fees, and buy back at 5-6 % mortgage rates. Additionally, doing a cash-out will double your mortgage rate.
Most people choose HELOCs to cater to these expenses, leaving their primary mortgage intact. This is important because courts will rule that your spouse is entitled to getting 50 % of your family home's existing equity. For instance, if your home's worth is $500000 and you have a $200000 mortgage, its equity is $300000.
Getting cash to buy out your spouse is difficult if the court rules that your spouse is entitled to $150000 of the home's equity. You could sell the home, but it means you'll lose 10 % of your home's value or cash refinance it and increase your interest rates from 3-6 %. You could choose another option, HELOC, and tap into 100 % of your home's value.
You could take out a HELOC loan (considered a second mortgage) for 50% of the equity, pay a few closing costs, and have the money to buy out your spouse in a few weeks. HELOC loans won't change your first mortgage in any way. You could still use this option even if you don't have a lot of equity in the home.
For instance, if you have a home valued at $300000 and an existing mortgage of $250000, your potential HELOC could be $50000. You could apply for a $25000 HELOC loan to pay out your spouse, bringing your total debts to $275000. This brings your LTV to 92 %, and most lenders won't provide a cash-out refinance; however, many HELOC lenders will.
Leaves the primary mortgage intact.
It acts as a second mortgage with better repayment terms and interests.
Helps with divorce payouts even with 100 % LTV.
Protects owners from losing better interest rates from their first mortgage.
- Allows borrowers to lock in rates after closing to avoid paying more after using the money; however, such lenders require higher interest rates and various fees.
HELOC loans for home improvement
There are several ways you can pay for your home's improvement; however, getting a HELOC loan is the best way you could do it. You could tap into your home's equity using a home equity loan; however, it has many disadvantages. One is the possibility of losing your home to foreclosure if you don't pay back the loan on time.
You could choose to renovate your home out of pocket; however, you may not have extra cash to spare at the moment. HELOC loans are the best alternative to cash since they offer lower interest rates and tap into your home equity without running the risk of foreclosure.
Home improvement projects vary in cost and are pretty expensive. As such, you need a source of funding that provides steady and dependable financing to cover the costs.
HELOC loans provide low-interest financing you can use to cover renovation costs. The loan works like a credit card, and you get to pay the amount used after a draw period that lasts an average of 10 years.
The amount you borrow depends on your home equity. Borrowers with high home equity and better credit scores get to borrow more than those with poor credit scores and low home equity. Additionally, initial payments for HELOC loans tend to be negligible during the draw period, which can be beneficial if you plan on undertaking high-cost projects.
You'll get to borrow as little or as much money as you need and choose how to pay it off. Additionally, interest paid on HELOC loans is tax deductible if you use the money for home repairs on your financed property. This could be minimum monthly payments or a lump sum.
The loan is based on the home's current value instead of its projected value (after renovations). It has no or low closing costs, has flexible underwriting guidelines, and increases your home's value. Also, HELOC home repair loans allow borrowers to know how much money they can borrow.
How are HELOC loans better than refinancing your home?
Many differences make HELOC loans better than refinancing your home, and you should compare them to help you choose the best option. For instance, HELOC loans add a second loan at lower interest rates rather than extending your mortgage loan term.
Additionally, they only require borrowers to repay interest during the draw period providing them with breathing space to work on their finances.
The borrowers are expected to pay back the principal and interest during repayment. These benefits, plus minimal or no closing costs, make HELOC loans perfect for individuals who need financing and are cash-strapped.
Top 5 Places to Get Ice cream in Walton County, Florida
There's nothing good like some cold, delicious ice cream to help you cool down after a day in the hot Florida panhandle. Lucky for you, many reputed Walton County, Florida, shops have some of the best local ice creams to choose from.
Check out five of our favorite shops in Walton County, Florida, for some of the best ice cream you'll ever need.
Kilwin's Chocolate, Fudge, and Ice Cream Shop - This Ice cream shop has warm and friendly service and is reputed to have the best Mackinac Island fudge. They have the original recipe for chocolate treats, ice cream, and fresh candy made in the store. Visiting the shop is a great experience, and they are welcoming to locals and visitors on vacation who want to taste their delicious ice cream. The shop has been in business since 1947, implying its steadfast commitment and reputation.
Pecan Jacks - Pecan Jack's is family owned and has some of the most delicious selections of ice cream, toffee, chocolates, gummies bears, and cashew brittle. They are an ice creamery and candy kitchen opposite Gulf Place on 30A. The shop is the perfect location to get some dessert while on vacation. The shop has the best ice cream, and you will love what they sell.
Mo La La Ice Cream & Desserts - This shop is located in Seascape Towne Center and Baytowne Wharf. The shop is known for its 24 ice cream flavors, shakes, specialty sundaes, and homemade fudge. People even voted the shop's fudge recipe one of the top five in the country. Additionally, their chocolates and waffle cones are fresh and made daily.
Blue mountain beach creamery - This is a family-operated and owned ice cream shop on Blue mountain beach. The shop has been operating for over 20 years and serves the most delicious ice cream to locals and visitors alike. You should stop by the location and enjoy their ice cream while enjoying other fun activities on the beautiful beach.
- Ben & Jerry's - This ice cream shop has a reputation for making the best ice cream. The shop is located on Miramar beach in South Walton, with a wide selection of ice creams. They also have sundaes, sorbet, frozen yogurt, shakes, and smoothies that will tickle your taste buds.
Taking a HELOC loan to sort out your finances is always the best solution, especially if you don't have enough cash to solve them out of pocket.
The loan comes in handy and is quite beneficial when using it to renovate your home since you get tax deductions and enough steady financing to complete your project.
The loan has other benefits, including low-interest rates, which are also a massive plus for the borrower. HELOC loans are infinitely better than refinancing your home since you get a separate loan that you can repay independently at lower interest rates.