I believe with most HELOCs you make interest-only payments on whatever you draw the first X years (5,10, whatever) and then after that initial term is over, you have to make principal payments as well. But during the interest-only period, you pay whatever the interest amount is that accrues. Say you have a HELOC and tap $10k @ 5% interest, you’d just pay ~$40-something bucks a month as long as the rate was 5%.
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2nd home HELOCS and fixed rate seconds are more difficult. Primary residence is easier. I would go to a local bank or credit union where the 2nd home is. They know the market and should be able to offer a decent rate with better service than the big boys.
And yes you can do a HELOC with the draw. Prime is going up this week but the interest only option softens the blow if you are looking at cash flow.
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Thanks @Kerob. I will try some local CUs, my 2nd home has more equity (40%) compared to my primary one (30%) so I was thinking the approval chance is higher with it. Both have enough for my need of cash short term. I think I’ll let them know about the primary home too (they are in the same city anyway) to see what they say about it.
If your HE product has no balance you won’t pay any interest.
Generally the three-year provision is for HE products where the upfront fees (credit report, valuation/appraisal, flood certification, recording/government fees, etc.) are paid by the lender (at or close to $0 upfront cost to you). If you close the loan/line within three years you would be required to pay the lender for those costs.
Aside from that, if your balance is $0 there’s really no reason to close the line because you aren’t paying any interest. Our Chase HELOC has a $50 annual fee, but the DCU one is entirely free on an ongoing basis… with the exception of any interest we pay that’s tied directly to any draws we’ve made.
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I used bank’s online calculator so it’s kind of confusing because they display the monthly interest-only payment. So correct me if I understand it wrong:
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If I don’t draw any money from HELOC to my checking account, I won’t pay any interest, even during draw period?
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Say my HELOC limit is $10k, and I draw $5k this month, then repay it in 3 months. So the interest I’ll pay is for the $5k only?
That’s correct. We’ve never used our DCU line, opened in mid-2020, and we’ve paid nothing for it (either upfront or ongoing).
I used our Chase HELOC a handful of times, and we’ve only paid nominal interest for the handful of days we’ve moved money from the line to checking and then returned it. (Exception is the annual fee, which I mentioned above).
Even though it’s an imperfect analogy, think of a HELOC as more like a credit card than a mortgage.
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My wife and I have been discussing HELOC lately. We have a few projects we need to do around the house. Sorry I’m not familiar with it, but what is typically a good rate for a HELOC and how do the terms work?
Has anyone ever been in a similar situation? What would you think the best route would be?
So I submitted my application to BoA online, they did a hard pull. Apparently they only require me to keep the initial draw for 3 billing cycles to have the discount rate, which works for me.
Is this normal that my application has been made publicly available to other banks, receiving too many calls/texts this morning. Quite a creepy practice.
If you can, I would suggest holding off on some of these projects until rates improve.
I am not sure how much research you’ve already done on HELOCs, but a good rate in this current market (with high interest rates and inflation) is subjective. Check out bankrate. It is one of many resources out there.
I have not done a HELOC personally, but a few years ago I took out a home equity loan. It is pretty much a second mortgage (I borrowed a fixed amount with a fixed rate, payable over a fixed time frame).
I would strongly recommend doing more research, and talking to a mortgage professional about your options. Credit unions usually have better interest rates, and depending on the loan product, they do not charge as many fees as the bigger banks.
Wondering if anyone can help point me in the right direction. I am currently looking at purchasing a new primary residence that needs a major renovation (mostly cosmetic with a 500sq addition).
Sample purchase price of $450 with a renovation cost of $400, for an all in of $850. Comps in area support after renovated value. I’m struggling to find a decent solution to finance the renovation, does anyone have any suggestions/ideas?
they support this now. will they support this after the market bottoms out? you might bet getting yourself in for a world of hurt trying to futurecast at the current moment.
My town has never had a yoy decrease in the last 20 years, so I would assume so.
Appreciate the concern, but I was more looking for what product options I have, not financial advice.
may the light of father jerome shine upon you.
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My guess would be a construction loan with refinance after project completion using new home value. But I’m not sure it’s easy to find a finance org that would originate such loan. Especially in current rate raising environment and slowing economy.
Best bet probably be some local bank/credit union that also believe value in your town don’t drop as much as the rest of the market.
Otherwise some hard money lenders used by flippers but that be taking a chance to be able to refi later on.
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Most of the more conventional products in this space target lower price ranges and lower credit scores, but check the max loan limits for your area for USDA loans, FHA 203K, FannieMae Homestyle, etc. Many require either some sort of insurance premium or higher rate to cover risk.
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Went back 50 years. My market had 4 years (all in the 90’s) with a yoy decreases in home prices. There wasn’t even a decrease during the financial crisis. Believe it or not, not everyone lives in california, NYC, or Florida where real estate is subject to massive volatility.
I checked in to some of those, including the 203k and also the RestoreNY product. There seem to be quite a few hoops to jump through.
I might end up just selling off a few positions and paying cash, but that doesn’t seem like the logical solution given how down markets are. Would rather use someone else’s money @ 4-5% 
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this chart is literally showing pretty big price decreases during the previous recessionary periods so i’m not exactly sure what you’re expecting here.
You clearly struggle reading a chart. You are confusing a slowdown in yoy growth with declines. But I digress, not arguing with someone whom has made up their mind.
yes as has been expressed to me before my intelligence quotient is lacking in certain departments.
well you’ll forgive my obvious blindspots in economic data processing but doesn’t the line going below zero mean a decline?
also, if all the other average prices are rising but your prices are dropping relative to those averages, isn’t that a decline relative to the marketplace.
i’ll take my answers off-air.
you said this
Which is 100% false.
The chart shows mild yoy increases in previous recessionary periods: early 80s, 01, 08, etc.
Then you say this, which tells you can at least read a yoy chart…
which I agree with. And to which I said in first post,
and then, there’s this statement. Which I have no idea how it relates to you telling me that my after renovated house won’t appraise because house prices in my town are going to “crash”.
So, I’ll ask again, can we please stop with the non value add commentary?