In today's blog, we're here with the lovely and intelligent Ms. Cassandra Dorsainvil from OVM Financial and she's going to be talking to us about HELOC.

What is HELOC?

A HELOC is a Home Equity Line Of Credit and basically what that does is it gives you the ability to tap into the equity of your home without having to refinance. So a lot of times, especially in the last couple years, interest rates were great, people refinanced to get the lower interest rate. They maybe didn't take the cash out that they needed to do home improvements or pay off debts or for investment purposes. So maybe somebody didn't pull that equity out to pull the cash out so using an equity line of credit basically it's like a credit card but using your equity from your home. So let's say you know your first mortgage is fine, you're good with the payments, but you have an investment property that you want to purchase, or you have a child that's going to college, bills that you want to pay off, you can utilize that home equity line of credit to pay off those debts or to invest so that just gives you some leverage and a great opportunity. The cool thing about it is that let's say you did an equity line of credit for $40,000, you used up the $40,000 in for whatever the case may be. As you start to pay off that payment, that $40,000 still is available so just like a credit card when you pay off that debt you still have access to that equity so it's a great way to just kind of tap into the equity in your home without necessarily refinancing your house. 

So if a person wanted to apply for a HELOC, what is the process for that?

Typically it's going to be more so your bank that's going to provide you the equity line of credit, very rarely have I seen a lender that can offer an equity line of credit.

So if a person wanted to do a HELOC, they would just need to go to their bank and then that bank would go through the process with them to try to have that line of credit.

Yes and it's a lot easier compared to refinance to where you don't have the cost that's associated with the refinance, you don't have a lot of the documents, the process - it's a lot more streamlined and the interest rate will be based off of the market so it's a lot different also, it's not the same interest rate that you would get on your first mortgage.

Since you mentioned interest rate, would that amount of credit be similar to a credit card or would it be more interest rate towards a home mortgage?

Well interest rates are typically close to that of your credit card, you're kind of like in the double digits no line of credit it's going to be relatively low.

So essentially you can easily take a HELOC out of your home, use it as a credit card and have that extra money until you pay it off just like you need.

Yes and the payments are a lot cheaper so if you want to just have that ability just to have a small portion of a payment. And here's the cool thing about it, let's say if you knew that you were going to come into some cash a larger portion and you just needed something like right now to kind of pay off that or investment, you can just make that interest only payment which is a lot cheaper and then have that ability to pay the loan off. Or you can make the two principal interest payments and just keep making payments until it's paid off but it does give you that flexibility of a much cheaper payment. 

Are there any disadvantages of HELOC that you know? that you've seen before?

No, not that I could think of. Of the top for the most part is very advantageous now I would say a home equity line of credit is more like a luxury mortgage product in a sense to where it does require you to have a higher credit score compared to a refinance. You could probably refinance a 600 - 620 credit score but when it comes to the home equity line of credit you're gonna need to have about a 700 or so credit score. 

So the bottom line is you could do a HELOC on your home because right now we're in crazy times, the housing market is going through the roof and people have a lot of equity in their homes. You can essentially take that amount of money and use it as a credit card to pay bills, to do anything you need to do without having to go through the mortgage company to do a refinance that's low interest rates so it seems like it's a win-win situation for them.

Absolutely and another caveat, so I don't know if you ever heard of bridge loans. I don't know too many lenders that offered but I remember back in the days, bridge loans was a thing to where you can use that bridge loan to help finance for a new property but because that's kind of very few lenders offer that service, one way you can tap into your equity to purchase another home is the home equity line of credit so before putting that house in the market, doing a home equity line of credit pull that cash because the way the market is people putting $40,000, $50,000 over asking price just to get their bid so to tap into that equity now, that's a good way to have access to those funds. 

Is there anything else you want to tell the people about HELOC or how that process goes or what you would recommend they do in this market right now if they want to use the HELOC?

I would recommend you do is to first contact your lender just to make sure you identify what's going to be in the best interest of you and your goals and you should have a lender that can actually look at your full picture, look at your goal, and instruct you like you know what, it's best that you go ahead and get an equity line of credit if that's the case. If your lender can offer the equity line of credit then great, worst if not then just contact your bank, let your bank know you have this property you're looking to get a home equity line of credit. They'll go ahead and process the paperwork. Usually it'll take less than 30 days to complete the transaction for a home equity line of credit depending on how much you're looking to borrow. Sometimes they can use the automated value  from online, from their automated system or they can actually do an appraisal to determine your true value. One thing to note though with the equity line of credit, you can't max out at 100% like you can't pull out all of your equity. So typically they want to make sure that you keep at least 10% equity in your home when you're pulling out equity on a HELOC.