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Updated over 6 years ago,

User Stats

106
Posts
29
Votes
Jon Mason
  • Rental Property Investor
  • Franklin, TN
29
Votes |
106
Posts

Advice on HELOC Terms - good deal or not?

Jon Mason
  • Rental Property Investor
  • Franklin, TN
Posted

My wife and I are researching using a portion of the equity we have in our house to purchase a SFR. I spoke with a commercial lender yesterday who quoted me on a HELOC and I'm questioning some of the terms and whether or not this is a good deal.

They'll go 90% LTV at prime + 1. It's a 10 year draw period, no closing costs, only the 3rd party fees (appraisal, etc) which he said would probably be around $850. The lifetime max rate is 24.33% with no annual cap which makes me a little nervous from a catastrophic worst case scenario perspective. However, my hope would be that we'd refinance into a traditional mortgage and pay back the heloc after it's seasoned.

My (probably newbie) question is. He quoted me prime + 1 on the phone, but when I got the document reflecting the terms, in one place it states, "To determine the APR that will apply to your account, we add a margin to the value of the index." which seems to correspond to the prime+1 bit, but then in another spot where it talks about rate changes it says, " there is no limit to the amount by which the rate can change in any one year period, except that in no circumstances will the rate ever be less than 7.097%." What am I missing here? I know that an interest rate and an APR aren't exactly the same thing, so maybe that's what's going on here, but I'm hoping someone can offer some guidance.

Also, I plan to shop around a bit, but does this sound like a good deal, and if not, I'd love some recommendations for other lenders who could also do more of an investment type loan in conjunction with the HELOC.

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