Secured equity loans are becoming increasingly popular among homeowners in California who collateralize their homes to take cash out. Financial experts claim the popularity of these loans has grown because the majority of homeowners purchased or refinanced their properties before the Federal Reserve commenced to increase the federal funds rate that impacts interest rates. The available home equity loans for qualified homeowners includes a fixed-rate mortgage loan or a HELOC.

Orange County Home Equity Fixed Rate Loans

A home equity fixed-rate loan allows the owner to get a lump sum one-time cash amount that has to be repaid monthly in equal payments over ten, fifteen, twenty or twenty-five years. The fixed-rate option is usually most applicable for homeowners who require precise amounts of cash in addition to various needs such as debt consolidation, home improvements or other big expenses.

For instance, a Laguna Beach homeowner has a $5 million value home with a $2 million first mortgage rate of 3 percent. This hypothetical borrower is most likely interested in maintaining their first loan and has a much higher chance of selecting a 15-Year fixed rate home equity loan for $750,000 at an APR of 8.875%.

When seeking home equity loans, there are a few important factors to bear in mind and these include the fixed term options as well as allowable property usage. The following specifics will assist you in your decision. 

Fixed Term Options
Mostly, home equity loans have fixed interest rates and payments that remain constant for 15- to 25- years. Although some lenders offer 10-year terms, the 15 to 25 years terms are most common choice. The fixed-rate option also gives the borrower peace of mind knowing the payment will never rise and repayment obligations, which makes it appropriate for those who seek steady schedule of payments.

 Property Usage
Home equity loans are normally offered on primary residences and the maximum amount which can be borrowed is controlled by the property value, credit score, and personal income. For most lenders home equity loans are usually limited to primary residences while mortgage brokers provide a wider range of loan programs and allow them on second homes as well as rental properties. This therefore implies that conservative lenders such as a bank or credit union will restrict it to the homeowner’s primary residence.

HELOC for Homeowners in San Diego

A HELOC is similar to a credit card in that homeowners are allowed to borrow up to the maximum limit established using their homes as collateral. The interest rate is usually variable, and the borrower has a draw period where he or she may access funds and trigger the repayment period when he/she must close out their balance. For instance, many mortgage lenders provide HELOCs with a 10-year draw period and in the next 10-years it’s time for repayment. As such, a HELOC offered to a San Diego homeowner may be as low as 8.875 with a low LTV.

A home equity line of credit, or HELOC, is an flexible financial instrument that allows a mortgagor to borrow against the value in their homes. The question arises as to what is the real interest rate that you may have on your HELOC. Given a prime rate index plus margin, this can range from an additional 1.5 to 6 percent added to the index depending upon how much total equity is in the property.

The prime rate is an index lenders use to set the full interest rate on their variable loans including HELOCs. The margin lenders charge depends on how much cash the borrower desires to receive through a HELOC lender, gets added to the prime rate index to determine the full interest rate. This in turn raises the effective interest rate for a borrower and sometimes lessens its attractiveness to borrowers with high LTVs.

HELOC rates can be influenced by a number of factors such as the borrower credit score, combined loan-to-value ratio and debt to personal income ratios. People with better credit scores and lower combined loan-to value (CLTV) would in many cases benefit and secure a low interest rate. The lender will also look at the borrower’s income and overall financial profile when deciding what margin needs to be added onto prime.

Homeowners should shop around for various HELOC offers from different lenders to get the best terms and lowest margins. Through comprehension how the prime rate and margin influence HELOC’s interest rates borrowers will know better about who offers the best home equity rate and terms.

 Bank Statement Home Equity Line of Credit

The new bank statement HELOC option allows self-employed homeowners to use their business bank statements to document income instead of tax returns. The requirements and guidelines vary from the traditional HELOCs. One difference is the maximum LTV allowed is 85 and the borrower needs to have a 740 or higher middle credit score. For LTVs of 80 and less they require a 720 middle credit score.  

What’s great about this particular program is the ability to use it on a second home or investment property. It works the same exact way as a bank statement mortgage on a first lien.  This can help Californian’s who want to cash out and have a low interest rate on their first loan.

For example, an L.A. county homeowner with a 760 credit score has a first mortgage balance of $1.5 million on a $3.5 million home. They may want to cash out $400,000 equity by using this HELOC program that has a 3-year or 5-year draw period and a 12-15-year repayment period. Under this loan scenario, the interest rate would be 9.875% with an interest only option during the draw period.

There’s many homeowners sitting on lots of equity in Los Angeles, San Francisco Bay area and places in between than can benefit from this new line of credit product. The funds you receive may be used to construct an ADU unit, make home improvements or pay off other debts among others.

To summarize, California homeowners with built-up equity have a wide range of options for equity access from their homes which are broad based on various factors. These loans provide a few repayment periods and interest-only payment via HELOCs on a primary residence, second home for investment properties. The result is a product that is attractive to those who want to borrow equity to solve a financial need. This line of credit product is available for homeowners in other states as well such as Florida and Texas.