Home Equity Line of Credit Programs

1st Continental Mortgage offers several homeowner home equity loans that allow you to use your property as collateral. Mostly used as second mortgages, our home equity loans and lines of credit can also be held in first positions (1st mortgage) for home buyers, with up to 100% purchase money. If you have an excellent credit history, sufficient income, and have a fairly good loan-to value and combined loan-to-value ratios, then you are likely to be approved for a 1st Continental Mortgage home equity loan or home equity line of credit.

There are two types of home equity loans, open ended (Home Equity Line of Credit) and closed end (Home Equity Loan). Both of these loan types are also known as second mortgages as both use your home as collateral just like a traditional first mortgage. Mostly, home equity loans and lines of credit are designed for a shorter time period than the primary mortgage.

Contrary to how the industry represents the HELOC loan programs, the Home Equity Line of Credit is not recommended by 1st Continental Mortgage as a long term financing option because of the cost of money in the form of interest you pay on the product. This open ended line of credit gives you the flexibility of drawing funds out as needed and paying interest only for a fixed period. However, eventually, the note fully amortizes and are typically tied to high cost adjustable rates. Long term, this can be just like having a credit card, except this credit card is secured by your home. If you plan to own your home for a long period, we recommend a cash out homeowner refinance loan as it will traditionally offer you a long term lower cost of funds Vs. a home equity line of credit, depending upon the amount you are financing.

Usually, mortgages are set for a time period of 30 years, but the typical home equity loan and line of credit are designed to be repaid in 15 years to 25 years. In some instances, we may be able to offer terms as long as 30 years. You can also gain tax benefits when you deduct home equity loan interest on your personal income taxes, however, please consult a tax professional before making any mortgage financing decisions based upon interest deductions.

What does collateral mean? Collateral is the property that you pledge as a security or guarantee against a loan. The collateral represents a promise by you that the note will be repaid within the loan terms. If you default on the repayments, the lender can take your home and sell it to recover any funds owed by you, plus costs associated with the process.

Equity is the difference in amount between the value of your home and the amount you owe on the mortgage. Here's an example to illustrate this: say your home is worth $200,000. You make a $20,000 down payment and borrow $180,000. So the day you buy the house your homes equity and the down payment are the same ($200,000 - $180,000 = $20,000). Let's fast forward to five years from now. Assuming that you have been making your monthly installments and have paid off $13,000 of mortgage principle debt, you are still left with $167,000. However, in the past 5 years the value of your home has increased and now it's worth $300,000. So your homes new equity is $133,000 ($300,000 - $167,000)

A home equity line of credit or HELOC is similar to a credit card in mechanism as it offers a revolving balance. With a HELOC you can borrow up to a set amount of money for the duration of the equity loan where the time limit is set. While you can withdraw money as the need arises, you must pay off the principal in order to use any home equity credit again.

A HELOC allows more flexibility than a fixed-rate home equity loan. Moreover, a line of credit typically pays interest only first, has a fluctuating rate of interest and installments are dependent on the interest rate, amount still owed, and whether the line of credit is within the loan draw period or the repayment period.

If you need to borrow money you can do so during the draw period (5-10 years), while during repayment (10-15 years) you can't withdraw any money unless you repay the balance remaining on the loan and take out a new home equity line of credit.

Remember, you need to pay off the balance if you decide to sell your home whether you have borrowed on a home equity loan or a line of credit. To learn more about 1st Continental Mortgage HELOC and Home Equity Loan programs and which is right for your situation, give us a call!