What do I need to know about a HELOC?

[dr.girlfriend]

Spinning off from my other thread...if we do go ahead with our renovation, we may need to take out a HELOC of about $85k - $100k.  I've done some reading online about them, but haven't talked to any banks.  Any advice about HELOCs?  Here are things I'm still unclear about:

1.  Some mention a "minimum draw" -- is that always the case?  And if so is it an amount you have to draw at a particular amount of time?

2.  Are there any penalties against paying a HELOC down as quickly as possible?  I know some have "early closure" fees but can you just keep it open with a $0 balance?  Some of the info says you can make a payment bigger than the minimum "but less than the outstanding," but how much less?

3.  Most mention a draw period and a repayment period, but then some talk about all the principal being due at the end of the draw period.  That doesn't make a lot of sense to me...you'd just be paying the interest then during the repayment period?

Sorry if these seem like basic questions, I swear I've read a lot and it's just all kind of conflicting and fuzzy -- maybe because there are different rules for different HELOCs or maybe because I'm just not getting it.  :-)

[aprilsails]

I think you need to start talking to banks. We spoke to two banks about getting a Heloc to get the deposit we needed for our new build. However, both had slightly different deals, so I would think that would likely be the case for each bank.

First bank required a minimum $50,000 withdrawal within 3 months of opening the account. We could not pay it off in entirety until 6 months after the opening date. They paid all assessment and lawyer fees to set it up, so this was their way of offsetting that cost.

Second bank had no conditions on withdrawals or on repayment, but we would have to pay for all set up costs ourselves ($1500-$2000ish). We would have to use their appraiser and couldn’t rely on one of our own.

Now, we didn’t wind up going through with either of these, but went back and got an extended LOC from a lender with which we had our original mortgage. They had rolled a HELOC at a good rate into the first mortgage for $20k. We had never touched it, but it remained in our name converted to a LOC when we switched mortgage providers (super common in Canada since most mortgage terms are 5 years, not 15 or 30 like Americans). They didn’t require an appraisal and the rate was only 0.15% higher than the other two banks were offering, so it seemed like a win-win to go with what was already set up. We only needed $35k so setting up a HELOC didn’t make sense once we looked at it.

Which is to say, go talk to lenders and banks and see what you can obtain. Going through your current mortgage lender is probably easiest (our doesn’t offer HELOCs since it is an online only lender).

[tealblue]

Nov 4, 2018 12:00:17 GMT -5 dr.girlfriend said:

Spinning off from my other thread...if we do go ahead with our renovation, we may need to take out a HELOC of about $85k - $100k.  I've done some reading online about them, but haven't talked to any banks.  Any advice about HELOCs?  Here are things I'm still unclear about:

1.  Some mention a "minimum draw" -- is that always the case?  And if so is it an amount you have to draw at a particular amount of time?

2.  Are there any penalties against paying a HELOC down as quickly as possible?  I know some have "early closure" fees but can you just keep it open with a $0 balance?  Some of the info says you can make a payment bigger than the minimum "but less than the outstanding," but how much less?

3.  Most mention a draw period and a repayment period, but then some talk about all the principal being due at the end of the draw period.  That doesn't make a lot of sense to me...you'd just be paying the interest then during the repayment period?

Sorry if these seem like basic questions, I swear I've read a lot and it's just all kind of conflicting and fuzzy -- maybe because there are different rules for different HELOCs or maybe because I'm just not getting it.  :-)

Do you have the equity currently in your house? I assume so, but just wondering if you have this much equity after reading your other thread.

We opened a HELOC probably 6 years ago. They appraised our house and then we could bottom up to 80% (1st mortgage + HELOC) at prime % or up to 90% for prime +1%. We had no fees if we withdrew $10,000 at closing and could repay that ASAP with no penalty.

We have no prepayment penalty and often have $0 balance but also currently owe $40k after a massive basement remodel. Our HELOC is open for 20 years (so 14 more) and after that, I guess we’d need to reappraise our house and reopen one? I don’t really know.

Our monthly payment fluctuates based on the balance. It’s 2% of the average prior month balance, so if yours is similar, you could have a $2,000/month loan payment. We don’t have any draw rules or payment requirements outside the 2% balance each month, but you can make a 2% payment and then borrow against the remaining if you wanted. Therefore not really paying anything down.

Not sure if this is helpful but just call a local bank and ask. We went through a credit union for this as our main mortgage bank (Wells Fargo) loan guy said they weren’t really doing HELOCs often.

[dr.girlfriend]

Nov 4, 2018 20:02:31 GMT -5 tealblue said:

Nov 4, 2018 12:00:17 GMT -5 dr.girlfriend said:

Spinning off from my other thread...if we do go ahead with our renovation, we may need to take out a HELOC of about $85k - $100k.  I've done some reading online about them, but haven't talked to any banks.  Any advice about HELOCs?  Here are things I'm still unclear about:

Do you have the equity currently in your house? I assume so, but just wondering if you have this much equity after reading your other thread.

Hmmm...if I'm doing the math right, I think we should be good.  Assuming our house is still worth what it was when we bought it (which IDK if they take into account things like new windows, kitchen renovation, new heating/ac, or if it's just based on number of bedrooms, etc.) that is $300k, and we owe about $135k still.  But, still a little close, especially if it appraises for under that or something.

[madringal]

Nov 4, 2018 21:50:11 GMT -5 dr.girlfriend said:

Nov 4, 2018 20:02:31 GMT -5 tealblue said:

Do you have the equity currently in your house? I assume so, but just wondering if you have this much equity after reading your other thread.

Hmmm...if I'm doing the math right, I think we should be good.  Assuming our house is still worth what it was when we bought it (which IDK if they take into account things like new windows, kitchen renovation, new heating/ac, or if it's just based on number of bedrooms, etc.) that is $300k, and we owe about $135k still.  But, still a little close, especially if it appraises for under that or something.

Most banks will only lend up to 80% of your LTV. SO if it appraises at 300k, and you owe 135k, you are looking at about 105k in available equity. Every bank will have its own set of stipulations about draws/repayment/prepayment. I'd start with your local bank or credit union branch or mortgage holder and go from there.  

[rooster222]

We got one last year and I believe ours is for 10 years and the first four years are interest only. No penalty for early payoff.

I would recommend shopping around. We bank with two banks and the first one had really crappy terms but the other bank was great and easy to work with. It only took us about 2 weeks to get approved but they told us it can take a few months.

[dr.girlfriend]

Nov 5, 2018 16:10:08 GMT -5 madringal said:

Nov 4, 2018 21:50:11 GMT -5 dr.girlfriend said:

Hmmm...if I'm doing the math right, I think we should be good.  Assuming our house is still worth what it was when we bought it (which IDK if they take into account things like new windows, kitchen renovation, new heating/ac, or if it's just based on number of bedrooms, etc.) that is $300k, and we owe about $135k still.  But, still a little close, especially if it appraises for under that or something.

Most banks will only lend up to 80% of your LTV. SO if it appraises at 300k, and you owe 135k, you are looking at about 105k in available equity. Every bank will have its own set of stipulations about draws/repayment/prepayment. I'd start with your local bank or credit union branch or mortgage holder and go from there.  

Yep, but we had the $125k to do the addition in cash, so we are only (!) having to finance the remaining $60k.

[dr.girlfriend]

Nov 5, 2018 17:00:56 GMT -5 rooster222 said:

We got one last year and I believe ours is for 10 years and the first four years are interest only. No penalty for early payoff.

I would recommend shopping around. We bank with two banks and the first one had really crappy terms but the other bank was great and easy to work with. It only took us about 2 weeks to get approved but they told us it can take a few months.

Any recs for the bank you used, or was it local?  And did you have to move your other accounts to them?

[rooster222]

Nov 5, 2018 17:30:47 GMT -5 dr.girlfriend said:

Nov 5, 2018 17:00:56 GMT -5 rooster222 said:

We got one last year and I believe ours is for 10 years and the first four years are interest only. No penalty for early payoff.

I would recommend shopping around. We bank with two banks and the first one had really crappy terms but the other bank was great and easy to work with. It only took us about 2 weeks to get approved but they told us it can take a few months.

Any recs for the bank you used, or was it local?  And did you have to move your other accounts to them?

We used PNC (not sure if they are a national bank or just midwest). We already had an acct there and if you keep a certain amount in your checking there is a slightly lower interest rate.

[dr.girlfriend]

Nov 5, 2018 19:17:09 GMT -5 rooster222 said:

Nov 5, 2018 17:30:47 GMT -5 dr.girlfriend said:

Any recs for the bank you used, or was it local?  And did you have to move your other accounts to them?

We used PNC (not sure if they are a national bank or just midwest). We already had an acct there and if you keep a certain amount in your checking there is a slightly lower interest rate.

Oh, awesome, we already bank with PNC.  :-)

[msmerymac]

Nov 4, 2018 21:50:11 GMT -5 dr.girlfriend said:

Nov 4, 2018 20:02:31 GMT -5 tealblue said:

Do you have the equity currently in your house? I assume so, but just wondering if you have this much equity after reading your other thread.

Hmmm...if I'm doing the math right, I think we should be good.  Assuming our house is still worth what it was when we bought it (which IDK if they take into account things like new windows, kitchen renovation, new heating/ac, or if it's just based on number of bedrooms, etc.) that is $300k, and we owe about $135k still.  But, still a little close, especially if it appraises for under that or something.

Not for a HELOC, but when we re-financed the appraiser came in and noted all the improvements we had done since purchase, including new windows, new insulation in the attic and crawl space, interior paint, all new electrical wiring, basement waterproofing and refinished floors. I tried to mention everything we did that I could think of to him. The appraisal came back almost 20% over what we had paid (and about what we had spent on all that ) two years (I think) after we bought the house. (We went from a 30 year mortage with 10% down to a 15 year mortgage with almost 30% equity and saved almost 1.75%.) He used some nice comps, too, though. Some people recommend making the house is nice and staged/decluttered/cleaned the way you would for a real estate open house or something. 

[tommygirl03]

Nov 5, 2018 20:52:00 GMT -5 dr.girlfriend said:

Nov 5, 2018 19:17:09 GMT -5 rooster222 said:

We used PNC (not sure if they are a national bank or just midwest). We already had an acct there and if you keep a certain amount in your checking there is a slightly lower interest rate.

Oh, awesome, we already bank with PNC.  :-)

We do, too, and that is where our HELOC is thru. We use the branch closest to rt. 1 & 452, if that makes sense