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A Home Equity Line of Credit (heloc) is a revolving line of credit available to a maximum of 80% of the value of your home. This is not always the case, as some lenders only lend up to 65% as a matter of internal policy. If you already have a first mortgage, a Line Of Credit may be obtained from your existing mortgage provider. Or, a 'heloc' can be obtained in first position by itself.
The advantage of a Line Of Credit, for people with limited incomes, is that the minimum monthly payment is usually interest only. A standard interest rate of Prime plus .25% to .50% applies, however an individual lender’s rates may vary. If you do not require all the funds of a mortgage at once, and just need small amounts of extra credit available to you in times of need, this is a good option for you. The advantage to a Home Equity Line Of Credit is that by not taking all of the funds at once, you are only paying interest on the money that you have withdrawn rather than the total of your available credit.
The downside is that like most traditional mortgage financing, you must "qualify" based on credit score, job history, income and debt ratios. This can be a challenge for some seniors on limited incomes.
We do have one lender that offers a seniors' home equity line of credit at only prime plus .50 with relaxed lending guidelines. It also comes with optional payments, free legal and free appraisal. Read more about it here.
- You only pay interest on what you have withdrawn.
- Ideal for those who need smaller sums of money over a longer period of time
- Interest rate is usually only prime +1%
- You can possibly borrow up to 80% of your equity
- Qualification based on credit score, job history and other obligations
- Requires a monthly payment