Skyline 101: HELOC's (Home Equity Line of Credit)
This month, Skyline 101 is presenting HELOCs: the good, the remodeled, and the refinanced. In this month's article we are going to walk through the benefits of utilizing your home's equity to refinance various projects and debt consolidation. So, before we get started, let's talk about some basics:
What is a HELOC?
- A Home Equity Line of Credit (HELOC) is similar(ish) to a credit card where a member has a pre-defined spending limit and your home has an open lein on it for collateral.
- There are varying terms based on insitution, however at Skyline Financial Federal Credit Union we have a 10-year draw period and a 15-year repayment period.
Why would I get a HELOC?
- It's time for a kitchen or bathroom remodel. You're able to access the line of credit to purchase the items you need to complete the remodel. Or, you can quickly pay your contractor.
- It's a great source to refinance debt. If you're paying minimum monthly payments on a credit card, interest rates on the credit card can be 19% to 39%, where as the rate on your HELOC can be as low as 4% with Skyline Financial Federal Credit Union.
What does a "draw period" and a "repayment" period mean?
- Draw Period: this is where you can borrow and repay any amount up to the limit of your line of credit and you'll make interest payments that include a small portion of principal overall.
- During the first 10-years of a Skyline Financial FCU HELOC, you can use some or all of your available limit (just like a credit card) and your monthly payment will be paid back using a calculated daily periodic rate.
- During the draw period, monthly payments are lower than during the repayment period.
- Repayment Period: the amount of time you are making a monthly payment to repay your line until it's paid off. You can no longer borrowing against the line at this time.
- During the 15-years of a Skyline Financial FCU HELOC Repayment period your line of credit is converted automatically into a loan in which your ability to draw against the line is removed. This allows for you to pay down the borrowed funds.
- During the repayment period, monthly payments are higher than during the draw period.
How is the equity calculated?
- An appraisal is completed. Once the results of the appraisal are determined, a copy of the appraisal is sent to the loan officer for the calculation.
- Example: Your home is worth $200,000.00. You have a mortgage currently of $150,000 outstanding. You have $50,000 in equity. We can utilize 80% or $40,000 of the available equity.
What causes delays in getting to the closing table?
- Members not providing documents in a timely fashion.
- Missing signatures or not responding to the loan officer's requests.
- Appraisals being conducted later than expected due to schedule conflicts.
- Title searches coming back with unexpected or expected lien(s) against the property of which need to be resolved prior to closing.
How long does the process take?
- HELOCs take an average of 35 days from application to available funds. Sometimes it can be earlier, sometimes later. It's key to provide the loan officer with all of the requested documents at the time of being asked.
What are the steps to getting a HELOC?
- Submit an application
- Send in your most recent two paystubs to firstname.lastname@example.org
- You'll receive an email with disclosures documents to review and sign.
- A loan officer will conduct a credit pull and debt-to-income calculation.
- An appraisal for your home will be requested and the appraisal company will conduct a photographed appraisal of the inside and outside of your home.
- A calculation will be used to determine if your home has enough value to proceed. At Skyline Financial FCU, there is no minimum value you needed, however the line of credit cannot exceed 80% of your home's equity.
- A title search will be completed.
- A closing will be conducted in person at the Skyline Financial FCU office.
- You have a three-day rescission period, and then the line of credit is made available to you.
- You begin making payments the following month of using the line of credit.
If you have any quesitons, please do not hestiate to call us at 203-755-2030 and speak with a loan officer.
Yours in exchange,
James A. Higgins, MBA, CUDE
President and CEO