Home equity lines of credit for California Homeowners

If you need to borrow money to pay off debts or make a major purchase, a home equity line of credit (HELOC) can be useful. A HELOC is a form of revolving credit secured by the equity in your home. This is an open ended loan that can be paid down or charged up for the term of the loan, much like a credit card. The interest rate fluctuates (typically monthly).

With a HELOC, your lender will approve you for a specific amount of credit - the maximum amount you may borrow at any one time under the plan. In determining your credit limit, your income, debts, credit history and other financial obligations will be reviewed. An appraisal will be required on your home to determine the home's market value. Your credit limit will be based on a percentage of your home's appraised value, which is then subtracted from the balance owed on your existing mortgage.

When you take out a HELOC, you pay for some of the same expenses as when you financed your original mortgage, such as an application fee, title search, appraisal, and points (a percentage of the amount you borrow).  Many lenders will pay for all of the costs associated with obtaining the HELOC.

Most HELOCs have a fixed period (5, 10, even 20 years) during which you can borrow money. Typically, you will use special checks or a credit card to draw on your line. You will be required to make a minimum payment each month – usually the interest that accrued during the draw period. However, the interest you pay is usually tax deductible. At the end of your "draw period," you will be required to pay off the loan, making monthly payments on the principal and interest.

Paul Schectman at Viva Financial recommends that his clients obtain the largest equity line that they can qualify for.  This provides you with access to the equity in your home when and if you need it.  By having an equity line you are giving yourself the ability to manage your equity and your financial security.  You do not have to access the equity in your home, but it is there if  you need to take draws.  Don't wait until after you have lost a job, or you are out of work due to a medical disability.  The time to apply for a HELOC is when you have the ability to qualify!