TLC Lending :: Home Equity

Home Equity Loan

Home equity loans allow you to borrow money in a single lump sum for the full qualifing loan amount, less closing costs. You should use an equity loan when you need to finance large one-time expenses or investments.

Some uses of a home equity loan:

home improvements
second home or investment property
business start-up or business expansion
new car purchase

The interest rate for home equity loans are fixed rate giving you long-term payment stability. Remember, since home equity loans are second lien mortgages, the interest rates are generally 1% to 2% higher than first mortgages. You may want to consider refinancing your first mortgage to get cash-out instead of a home equity loan. See which option makes the most sense. Home Equity or Refinance

Home Equity Line of Credit

A home equity line of credit (HELOC) provides convenient access to your home's equity like a credit card, giving you a revolving line of cash that you can draw from when you need it. HELOCs are used primarily to finance ongoing expenses or for small miscellaneous purchases. One advantage of the HELOC, unlike home equity loans (HELs), is that you pay interest only on the outstanding balance, not the full amount borrowed. Also, HELOCs carry a much lower interest rate than home equity loans but the rate is variable.

Home equity lines of credit are adjustable-rate like first mortgage ARMs and are tied to the prime rate plus a margin. If the prime rate rate goes up, so does your monthly payment. However, as with all adjustable rate mortgages, HELOCs come with a lifetime rate cap to limit the amount of increases (usually upto 12%). In addition, some home equity lines may have an introductory rate or, as they are sometimes called, teaser rates for periods of 3 to 6 months. Be careful, though, these low start rates can create payment shock once the introductory period is over.

Is a HELOC right for you?Compare the rates on your credit cards (rates on credit cards and HELOCs are based on the prime rate plus a margin). If the HELOC rate is lower, you'll save not only on interest costs but from its tax deducitible status as well (please consult your tax advisor).

Home Equity Programs
Piggyback Loans or Combination Loans

Combines a first mortgage with a second mortgage, either with a HEL or HELOC. The advantage of piggyback loans are you are able to reduce your down payment requirement by borrowing more the customary 80% of the purchase price without having to pay costly mortgage insurance premiums or borrowing at the lower conforming rate than the higher rate of jumbo mortgages (i.e.loan amounts greater than $417,000).

In addition, you avoid the additional closing costs on the second mortgage since you are piggybacked on the first mortgage and making a single loan application for both mortgages. See Our Interactive Comparison Chart.

Stand-Alone Seconds

This is a true second mortgage where the process is similar to the first mortgage one. A separate application must be filled out and closing costs such as appraisal, title search and mortgage recording are typical. Some banks and lenders offer a no closing cost option, usually for a slightly higher margin on HELOCs or a higher fixed rate on HELs.

If you know what you want and you're prepared,