HELOC vs Home Equity Loan

[Arthur Voskanyan]

If HELOC’s have a interest rate that adjusts/fluctuates/variable based on market conditions, why would anyone take out a HELOC compared to a regular home equity loan? A home equity loan has a fixed rate, so you don’t have to worry about it going up on you in the middle of your term with a big balance? Also, how is the home equity loan disbursed to a borrower? Like is it just deposited into a separate account you can draw from and place to checkings, or is it like an issued credit card? Thank you in advance. Arthur Voskanyan

[Joe Splitrock]

Originally posted by @Arthur Voskanyan:

Roy,

If I own a house worth $400,000 and it's paid off free and clear, based on 65% LTV, a lender will loan give me $260,000 max loan amount???

Thank you,

I am in a similar situation. I have a paid off home that is worth more than $400K, bank appraised. They gave me a $200K HELOC, so it was under 50%. Originally they told me 65% LTV, until they appraised the value and then told me they capped the loan product at $200K. I would shop more than one bank to see what they can do.

The HELOC is nice because it currently has $0 balance so I don't pay a dime. I can keep the line of credit open for 7 years with no activity. My strategy is to use it to make cash offers, then refinance the property into a long term fixed rate loan. Pay off the HELOC, then do it again. Rate is variable but it is short term lending so no big deal. Only .5% over prime so not horrible.