Home Equity Lines of Credit (HELOC)

The Basics about Home equity lines of credit

(Helocs)

If you need to borrow money to pay off debts, make a major purchase or if you're a small business owner you can use it as a line of credit or for inventory purchase. In these instances, a home equity line of credit (HELOC) can be the smart solution! A HELOC is a form of revolving credit secured by the equity in your home. This is an open ended loan that can be paid down or charged up for the term of the loan, much like a credit card. The interest rate fluctuates (typically monthly).

With a HELOC, Pinnacle Mortgage Group will approve you for a specific amount of credit or Loan Amount - the maximum amount you may borrow at any one time under the plan. In determining your credit limit, your income, debts, credit history and other financial obligations will be reviewed. An appraisal will be required on your home to determine the home's market value. Your credit limit will be based on a percentage of your home's appraised value, which is then subtracted from the balance owed on your existing mortgage.

When you take out a HELOC, you pay for many of the same expenses as when you financed your original mortgage, such as an application fee, title search, limited appraisal and points (a percentage of the amount you borrow).

Most HELOCs have a fixed period (3, 5, 10, even 20 years) during which you can borrow money. Typically, you will use special checks or a credit card to draw on your line. You will be required to make a minimum payment each month – usually the interest that accrued during the draw period. However, the interest you pay is usually tax deductible. At the end of your "draw period," you will be required to pay off the loan, making monthly payments on the principal and interest.

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