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Home Equity Line of Credit
(HELOC) differs from a lump sum mortgage in that the highest
loan limit amount does not need to be received by the
borrower upon the close of escrow.
Home Equity Line of Credit: In a typical
mortgage, the Borrower receives the entire value of the loan
amount when the loan "closes."
Home Equity Lines act more like a credit
cards; a line limit is set by the Lender to be retreived at
will by the Borrower in whatever amount below the approved
maximum limit is agreed between the parties; The Borrower
can also work with the Lender to increase the loan limit
after the initial line of credit has been granted and
payments have been made in a prompt manner by Borrower; and
some Banks even issue actual credit cards for use by
Borrower, which are linked to the HELOC balance directly.
HELOCs do not have to be in second
position (second trust deed), although that is their most
common lien position. They can be held in first or, less
commonly, third position. (Home Equity Line of Credit)
Most HELOCs require good to excellent
credit history, and reasonable loan-to-value and combined
loan-to-value ratios. Often they can be acquired more
quickly and with less expense to the home owner.
Typically, Rates are based on the Prime
Lending Rate plus a Margin (Prime Rate+Margin Value = Note
Rate).
