If you have sufficient equity (value) in your property, a Home Equity Line of Credit (HELOC) is a great financing option. A HELOC has unlimited uses, since how you use the loan proceeds is up to you. The proceeds may be put towards home improvement, tuition, the purchase of a photovoltaic system, a down payment to purchase another property, or many other uses. Or the line of credit may be used as an emergency source of funds. And the interest that you pay may even be tax deductible, so be sure to consult with your tax advisor. Since this is a line of credit, you will only be charged interest on the outstanding balance – so with no balance, there’s no interest – and the line of credit will be available to you for up to 10 years. If you have an outstanding balance, your monthly payment amount will be based on repayment of 20 years or $100, whichever is greater.
We normally establish a HELOC based on up to 75% of your property value as determined by an automated value model (AVM), real property tax assessment, or third-party appraisal, depending on your situation – though we may go as high as 90% in certain instances. If you have a first mortgage loan secured by the property, we then subtract the first mortgage loan balance. The remaining amount is the equity that you have, which you can borrow against.
In the following example, the value of the property is $400,000 with a first mortgage loan balance of $200,000. The combined loan-to-value ratio used is 75%. Here, the credit limit amount would be $100,000, depending on loan qualification, which includes income, credit score, length of employment, and other related factors.
|Combined Loan-to-Value (CLTV):||x 75%|
|Less First Mortgage Balance:||- $200,000|