A Home Equity Line of Credit or HELOC, is a secured loan against your home. This is just like a mortgage but with the features of a line of credit. It is completely open(paid down at any time without penalty) and is also revolving (can be paid down and then used again). The loan is always available until closed out. A Secured Line of Credit can be added alongside a mortgage as s separate product. For example, if a client has equity in their home a lender will allow the client to borrow up to 80% of that equity when adding on a secured line of Credit. This can be applied on the purchase or refinance of a home.
Secured Lines of Credit can be used to purchase another property. It is important to note that the equity in your home is yours, so you can borrow against the equity to use to purchase a new property or as a down payment. This can also be converted into a regular mortgage to pay down the loan.
For clients wanting to invest in investment properties, a secured Line of Credit is a great product tool to have. No payment is made on the loan until it is used and if desired the payments can be kept to interest only.
Features of Secured Lines of Credit:
- If taken out without a mortgage, the maximum loan amount is 65% of property value
- If taken out alongside a mortgage, the total maximum loan amount is 80% of property value
- Product is completely open and revolving
- Option of Interest only payments
- No cost to the client if not used. The client only pays on the amount in use at any time
- Ideal for clients with future plans to purchase an investment property or just to have as emergency funds
- If set up alongside a mortgage, the equity increases as the mortgage decreases as the mortgage decrease the equity available is then added onto the line of credit.