January 1, 2010, Newsletter Issue #200: How a Home Equity Line-of-Credit Works
Tip of the Week
Like a straight home equity loan, a home equity line-of-credit (HELOC) allows you to borrow up to a stated percentage of your home’s fair market value (FMV) less the balance of your first mortgage loan. The credit and income verification process remains the same, as will the title examination, mortgage deed and note preparation. The note language, however, will be different. Instead of regular pre-calculated monthly payments according to a stated amortization schedule, this note will require either interest-only payments based on the amount of the loan outstanding at month’s end or interest-only payments plus some computation of a principal payment portion to be included.
After the closing and the rescission period, you will not receive the proceeds from your loan. You then have the opportunity to spend your proceeds in any amount at any time on any purpose you wish, up to your credit line maximum. Excellent for home improvements or having available low interest rate funds for other major purchases or instant cash flow reasons, a HELOC gives you the flexibility to use your proceeds when you want and repay on a schedule that fits your budget.
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