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      09-30-2012, 10:47 AM   #1
wakeboarder109
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Home Equity Line of Credit Question

I wanted to get some thoughts on home equity credit lines. I need to do some necessary home improvements (mainly the roof) and was thinking of getting a loan instead of dipping into my account. The rate is 1.99 % for 60 months. I have a solid 80k equity in the house and was thinking about a 15 to 20k loan. Thoughts?
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      09-30-2012, 12:25 PM   #2
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Quote:
Originally Posted by wakeboarder109
I wanted to get some thoughts on home equity credit lines. I need to do some necessary home improvements (mainly the roof) and was thinking of getting a loan instead of dipping into my account. The rate is 1.99 % for 60 months. I have a solid 80k equity in the house and was thinking about a 15 to 20k loan. Thoughts?
Absolutely a no brainer, especially if you actually have cash on hand to pay it off in a pinch if necessary.

OPM > your money.
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      09-30-2012, 02:55 PM   #3
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Quote:
Originally Posted by wakeboarder109
I wanted to get some thoughts on home equity credit lines. I need to do some necessary home improvements (mainly the roof) and was thinking of getting a loan instead of dipping into my account. The rate is 1.99 % for 60 months. I have a solid 80k equity in the house and was thinking about a 15 to 20k loan. Thoughts?
Absolutely a no brainer, especially if you actually have cash on hand to pay it off in a pinch if necessary.

OPM > your money.
That's what I was thinking. Especially with the rate. From what I've seen it seems pretty low.
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      09-30-2012, 03:33 PM   #4
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We'd need to know your current loan balance vs. your estimated home value. Here in California, $80k in equity doesn't really mean much, while in other states that's a large amount of equity. Reason why I say this is that the days of being able to use 100% of one's equity is gone, so not all of that $80k would be available to use.

But generally, yes, if you have the cash to pay it off, it's beneficial to use an extremely low rate vs. your cash. Also, HELOC interest can be tax deductible.
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      09-30-2012, 06:10 PM   #5
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Originally Posted by JMX328
We'd need to know your current loan balance vs. your estimated home value. Here in California, $80k in equity doesn't really mean much, while in other states that's a large amount of equity. Reason why I say this is that the days of being able to use 100% of one's equity is gone, so not all of that $80k would be available to use.

But generally, yes, if you have the cash to pay it off, it's beneficial to use an extremely low rate vs. your cash. Also, HELOC interest can be tax deductible.
I owe about 160k and the would be able to get 240k in the market give the neighborhood. Things have been pretty stable here in Virginia and selling well.
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      09-30-2012, 06:43 PM   #6
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Originally Posted by JMX328 View Post
Also, HELOC interest can be tax deductible.
In Canada, you can only write off the interest portion of a HELOC (or amortized mortgage) on a revenue (rental) property, not on your principal residence. OP may want to check on that.
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      09-30-2012, 08:27 PM   #7
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2% sounds like a pretty good deal. spain can't even borrow at that rate lolz
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      09-30-2012, 09:30 PM   #8
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I owe about 160k and the would be able to get 240k in the market give the neighborhood. Things have been pretty stable here in Virginia and selling well.
It depends on where you go, but most lenders give the best rates for 70% or less loan-to-value ratio properties. I know there are some lenders that give the same rate for higher LTVs, but they will generally be harder to find in this day and age. Definitely do your research and look around at the specifics for each lender.

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In Canada, you can only write off the interest portion of a HELOC (or amortized mortgage) on a revenue (rental) property, not on your principal residence. OP may want to check on that.
Well, the OP is the United States, not Canada.

Mortgage and equity-based loans are tax deducible on all property types, not simply rental properties here in the States. There are different rules for what you get as a write off; however. Nevertheless, principle properties are 100% included by IRS tax codes.

Personally, being a U.S.-Canadian citizen, I definitely plan on purchasing property in Canada one day, but it'll definitely be with cash, due to the tax codes for mortgage interest deductibility up north.
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      10-01-2012, 12:04 AM   #9
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Your ability to get a EQL will be driven in large part by where the appraised value of your home will come in. You really need to understand the home market has been hammered from foreclosures and short sales...in many cases, homes have decreased significantly due to factors out of your control. If this is the case, you may not have the equity you are anticipating. The lender will order a residential appraisal and go from there. Should you have the necessary equity to qualify for 80% or less - it's a no-brainer on the EQL at the rate/term you quoted.
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      10-01-2012, 04:16 AM   #10
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Your ability to get a EQL will be driven in large part by where the appraised value of your home will come in. You really need to understand the home market has been hammered from foreclosures and short sales...in many cases, homes have decreased significantly due to factors out of your control. If this is the case, you may not have the equity you are anticipating. The lender will order a residential appraisal and go from there. Should you have the necessary equity to qualify for 80% or less - it's a no-brainer on the EQL at the rate/term you quoted.
This.

Although, the type of appraisal may vary. For portfolio equity products (which most, if not all, HELOCs are), many lenders will first use an Automated Valuation Model (AVM), which is data based off of sales of comparable properties, appraised taxes, appraisals done in the area, etc. If they don't consider that sufficient, they then may use a Desktop Valuation Model (similar to AVM, but this is handled by a value analyst vs. a computer), Drive By Appraisal, or Full Appraisal.

Some lenders pay for this, some do not. Back when I was a Lending & Credit Officer, I had clients with homes that were expected to appraise for much higher, but once the actual valuation was given, the value of the home was much, much less than expected.

Some lenders will move to the next valuation model automatically, others will halt the loan and allow the customer to make the decision if they want to pay for a full appraisal or not.

At the same time, I know there are lenders that will go up to 95% LTV for HELOCs; my former employing bank did, while the bank I work for now does not. However, rates generally are not as favorable. Generally a 1.5-3% spread increase, due to increased risk to the bank.

As aforementioned, OP, do your research and see which lender would best fit your situation, as you are very close to the 70% LTV breaking point.

Hope this helps.
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      10-01-2012, 08:42 AM   #11
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Thanks for all of the insight. I will have to talk to a few lenders and get their thoughts on the matter. The tax appraisal on the property is just over $240k and comps in the area have been selling for closer to $300 but I figured planning for the low side would be the best bet. Does the tax appraisal have any relevancy to true market value these days?
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      10-01-2012, 09:23 AM   #12
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Is it a fixed term of 60 months? A line of credit shouldn't be fixed, it just floats similar to a credit card.

Just be sure there isn't any penalties for paying it off early.
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      10-01-2012, 11:13 AM   #13
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Generally speaking I try and pay "Cash" for most everything I do, I do not like paying interest if I can all avoid it. My mortgage and car loans are the only thing I have paid any interest in a long time.

However, a friend (who is a financial analysis) said it always a good idea to have a home equity loan open and available to you even if you do not need the money now. It allows you to do things quickly if you have some sort of emergency repair or unexpected expense. The interest rate is usually lower than a credit card or any other loan and most times you can write the interest off your taxes so the total cost to is less.

I just did a Equity Line and they are definitely being very conservative, which they probably should be. I had a lot of equity in my home and have a very high credit score with good income and they would not allow me to take anywhere near the max. They also appraise my home well below what it is worth due to a couple short sales in the neighbor (yeah thanks to people who can not pay their bills).

I can tell you my best option was with the bank that has my Mortgage. Part of the reason, they waive all the costs since they did the refinance a little over a year ago, therefore they had most of the supporting paperwork for the equity line.

Just so happens I have my checking with them, but that fact alone cut another 0.5% from the interest rate. They also gave me 1 yr fixed at 1% below the normal variable rate if I took a lump sum right away, which I did since we were doing work on our place and we plan to pay back over the next year.

My experience with looking for a equity lines, is more of the low rates you see out there are just teasers, most people can not even qualify for them, like you need to take 100K or 200K equity line even if you do not want or need. Most seem to have various gotchas tie to getting the low interest loans. Before you know it the interest is a couple of points above what most mortgages are. Mine is about the same as my fixed 15 yrs rate.

In my case they look at the my income to debt ratio, which was fine and had plenty of room to take on more debt, but they maxed me out at 83% of the value of the home. I asked for a couple thousand more and they would not budge, they said they push it to 83% because of my low debt ratio. They did said if I was willing to transfer my Investment accounts to them they would push it to 90%.

Last edited by Maestro; 10-01-2012 at 11:23 AM.
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      10-02-2012, 03:26 PM   #14
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Like some others mentioned, I also try to always pay cash for things and if not, they aren't necessary at that time.

In looking further into this, that rate was actually for a HEL not a HELOC and for those with credit score above 740. What I'm actually thinking about now is refinancing and utilizing available cash through the refinance. There's a local company some of my associates have used that has no closing costs.
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      10-03-2012, 02:18 AM   #15
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Be careful with those no cost refis many times they say no closing cost but they rape you on your interest rate. Shop the rate and ask what their lender paid comp is. Some lenders pay an average of 2.5% so they have to increase the interest rate to pay for their commission of 2.5% plus your closing costs. Which could be a difference of .750 to .500 added to the interest rate. Sometimes your best bet is to go with a credit union they usually pay their loan officers salary and their lender paid comp is 1% which will yield you the lowest rate.
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      10-03-2012, 05:11 PM   #16
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Google:

-Chase home equity value estimator
-Fifth Third home equity value estimator
-yahoo home equity value estimator
-zip realty home equity value estimator
-eppraisal

All of these sites will give you some idea of what the home is worth although its not a full appraisal by any means. I'd average all these site values to get your estimated value and go from there.
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