Home Equity Line of Credit

Discussion in 'Archived Threads 2001-2004' started by Doug R, Dec 12, 2001.

  1. Doug R

    Doug R Supporting Actor

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    Has anyone here gotten a home equity line of credit? Just curious on anyone's general vibe.

    Here's what I'm considering: talking out a home equity line of credit to bridge the gap between the money I have and the remaining balance on my mortgage. That way I can pay off my mortgage then pay off the line of credit at the lower interest rate (currently 6%, though I realize it rises with the prime rate).

    With no house payment I can pay off the line of credit fairly quickly.

    I don't know much about this, as you can see, and plan to talk with my bank tomorrow. I have the money reserved to pay off my house but don't have enough and don't want to invest it if I could pay off the house... then I could invest my new savings I receive after paying off the house. Make sense? hehe.

    Doug
     
  2. ken thompson

    ken thompson Second Unit

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    Why would you want to pay off your house? I can understand the psychology of feeling good about not having a mortgage payment, but it certainly is not the best place tie up your money. The expense of a home mortgage is government susidized.
     
  3. Kevin P

    Kevin P Screenwriter

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    An equity loan or line is basically a second mortgage, so by taking out an equity loan to pay off your mortgage, you're basically just re-financing your mortgage. If you want to take advantage of lower rates, just re-finance, since you can probably get a lower rate that way and the interest is tax deductible.

    Just my $0.02, and I'm no expert in the matter... if the equity line is a great deal (low rate, low/no closing costs, etc.) compared to re-financing, then maybe it's the way to go.

    BTW, the difference between an equity "loan" and a "line" is a loan is one shot--you get the money up front and then you pay it off over time. A "line" is like a credit card, where you can use it over and over. If you're looking to pay off the house sooner and avoid future debt, a loan is probably a better bet. But if you anticipate making home improvements in the future and may need to borrow several times, a line makes life easier since you only have to close once.

    KJP
     
  4. Tom Meyer

    Tom Meyer Second Unit

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    yeah, it doesn't make sense to pay off one mortage with procedes from another. I got a line of credit last spring to buy a new car. I got a much lower rate and the interest is tax deductable.
     
  5. Joe Wong

    Joe Wong Second Unit

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    Hi,

    I'm looking at a home equity line of credit (I believe this is where you just pay the interest on the balance outstanding?). In Australia I used something similar as a first mortgage, as long as you had 20% down. (This was great since it was interest only, and I deposit or withdraw money when I needed it. The interest is reduced if I deposit more money, and increased if I withdraw, etc.)

    In the United States, does one need to have a mortgage already before they can apply for a HE line of credit? Can one use 20% down and borrow 80% on a HE line of credit to purchase a home?

    Thanks for the help.

    Joe
     
  6. Doug R

    Doug R Supporting Actor

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    I was the one who started this thread and even made a decision since then.

    First, Joe.. to my knowledge, you do need a mortgage or a paid off house to get a HELOC. You're getting the credit based on the equity in your home, so thus you need to either have a mortgage (your equity being the amount you paid off so far) or own it.

    I decided to do the HELOC to pay off my mortgage. I took a HELOC at 5.75% (2% under my mortgage rate), which I plan to pay off within the year. I used the HELOC to get the extra money to pay off my remaining mortgage balance (+ the money I had in savings). Basically I just refinanced my home at a less rate with less balance. The danger is the HELOC isn't a fixed rate and could go up (it's adjusted every quarter). But I'm confident I'll have it paid off well before it would ever go above 7.75.

    In the end, I got what I wanted.. a far less monthly payment ($1382 compared to $425 now) so I can knock off the balance much quicker and have now a line of credit I can use any time I want. I probably could have done much riskier/smarter things with my savings that would have yielded better results but being ultra conservative, this was the best decision for me.
     
  7. Joe Wong

    Joe Wong Second Unit

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    Thanks for the reply, Doug.

    If one had 20% down, wouldn't that count as 20% home equity? I think of it this way: 20% down and then borrowing the remaining 80% through a HELOC is the same as owning a home outright and then borrowing 80% against it through a HELOC. I suppose the difference is that you have shown credit-worthiness by paying off your mortgage payments in the second situation, and now own the home. But if you have good credit history anyway, shouldn't that suffice?

    Thanks again,

    Joe
     
  8. Doug R

    Doug R Supporting Actor

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    Yea, that should work Joe. Sorry, misread you the first time. As far as I understand it, that's possible.
     
  9. Joe Wong

    Joe Wong Second Unit

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    Cool! Thanks Doug.

    Joe
     
  10. Joe Wong

    Joe Wong Second Unit

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    Argh...it seems like one has to own a home (as in having legal title) before he/she can apply for a HELOC. Frustrating. Again, I don't see how 20% down and 80% HELOC to buy a home is different from 100% owning a home and then borrowing 80% through a HELOC. The end result in both situations is I have legal title, have 20% equity, and owe 80% through the HELOC. Or am I missing something?

    Oh, well. Sorry for the rant. Looks I will have to go for a combination first mortgage and reduced HELOC.

    Joe
     

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