Investor · Catonsville, MD · Member since 2020 · 81 posts · 41 votes
Good morning, wondering why my co-worker is paying $700 in interest only payments but has been told that he can't take out any money from his $130,000 Home Equity Line Of Credit (HELOC). Don't you only need to pay on a HELOC if you have taken out the money and actually USED it?
What checks do banks do when you use that money? I would like to use a HELOC to reimburse my business partner for funding a rehab. Wanted to fully understand that process. Difficult for me to meet with banks during the day as a W-2 employee.
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
3y
@Joe Stout yeah, agree with the above post that sounds like he's maxed out.
Two of the common areas of concern for HELOCs I see out there is the 10 year maturity date and the adjustable rate. Since HELOCs have adjustable rates they will often catch people off guard when they adjust. Rates are higher now...but what will they be in 5 years?, Who knows? That's called risk. Unknown = risk. The 10 year maturity date is where the HELOC will modify into a different product all together. Meaning after opening the HELOC, 10 years later it will cease to be a HELOC. It will "mature" into a 20 year fixed rate mortgage that you can no longer draw on. And when it matures the rate will increase. I've seen typical numbers of 1%-2% higher than your current rate.
What HELOCs are designed for is to be a giant credit card. And just like any credit card, you need a plan to pay it back. So if you use it to say....buy another property. Then flip that property...thus paying back your Line of Credit. Then that's perfect! Because you will never get surprised by an adjusting rate or keeping a balance on it. Lines of Credit are PERFECT for people who have a plan to pay it back.
Rental Property Investor · St. Louis, MO · Member since 2022 · 125 posts · 124 votes
3y
You only have payments due if you use money from the line of credit. $700 is a pretty high interest only payment, so his line of credit is likely maxed out (hence he can no longer draw from it). Hopefully the HELOC is in the first lien position and there is not a mortgage payment on top of it. The interest only payments are just treading water and not lowering the principal at all unless he pays more than the $700 monthly.
Banks don't care what you are spending the HELOC on after you are approved. You get a checkbook and a debit card and spend it like you would any other checking/savings account. Call a bank and ask to schedule a meeting with a loan officer for a HELOC.
Good morning, wondering why my co-worker is paying $700 in interest only payments but has been told that he can't take out any money from his $130,000 Home Equity Line Of Credit (HELOC). Don't you only need to pay on a HELOC if you have taken out the money and actually USED it?
What checks do banks do when you use that money? I would like to use a HELOC to reimburse my business partner for funding a rehab. Wanted to fully understand that process. Difficult for me to meet with banks during the day as a W-2 employee.
A HELOC with a $700/mo payment is HUGE. Perhaps it is maxed? If he's paying that monthly that is his current payment. The payment could be a tad higher or lower every month depending on interest rates too. HELOCs are like a credit card but based on the equity of your home. You may be given a certain amount and depending on lender may only be able to use 50% and so on(lender dependent). Also, the interest rates swing widely depending on the market(and lender) like a credit card.
Consider talking to a local mortgage broker/some lenders near you. They should be able to help you find options if you're busy. You will just have to call them and ask them to provide you with offers if you're busy during the day
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
3y
@Joe Stout yeah, agree with the above post that sounds like he's maxed out.
Two of the common areas of concern for HELOCs I see out there is the 10 year maturity date and the adjustable rate. Since HELOCs have adjustable rates they will often catch people off guard when they adjust. Rates are higher now...but what will they be in 5 years?, Who knows? That's called risk. Unknown = risk. The 10 year maturity date is where the HELOC will modify into a different product all together. Meaning after opening the HELOC, 10 years later it will cease to be a HELOC. It will "mature" into a 20 year fixed rate mortgage that you can no longer draw on. And when it matures the rate will increase. I've seen typical numbers of 1%-2% higher than your current rate.
What HELOCs are designed for is to be a giant credit card. And just like any credit card, you need a plan to pay it back. So if you use it to say....buy another property. Then flip that property...thus paying back your Line of Credit. Then that's perfect! Because you will never get surprised by an adjusting rate or keeping a balance on it. Lines of Credit are PERFECT for people who have a plan to pay it back.