The most important aspect of accessing your home equity may be to limit unnecessary costs and keep your low rate first trust firmly in place. From there, you will have two distinct options. The first, and most advertised, may be the Home Equity Line of Credit or HELOC. This is a variable rate open-ended credit line that is low cost and traditionally offered by the large banking institutions. This type normally has maximum loan limits of $250-$400K. The second option, that is less publicized, is the closed-end option. This is nothing more than a fixed second deed of trust or otherwise termed second mortgage.
How do we compare the two when it comes to relative safety? The HELOCs are variable rates, meaning your rates can move periodically, and they can be shut down by the banking institutions on the basis of the general market environment or internal monitoring of your credit. This was not an uncommon occurrence during the pandemic. The lender reserves the right to turn off the spigot as they see fit with this option. The closed-end option may be a safer bet given it’s not an open-end line of credit nor is it variable. With the closed-end option, the funds have been advanced and the lender does not have the ability to manipulate access or adjust terms. Your home equity line in the form of a fully amortized second trust is firmly in place on your home as a fixed rate. Costs may be slightly higher on the Closed-End Home Equity loan but the limits go slightly higher, up to $500k, and alternative documentation types are also available. In summary, both options may be good choices for accessing your home equity but if you are thinking longer term and would like certainty and safety with more flexibility up front to fit your objective, the Closed-End Home Equity Second Trust Mortgage may be the best option and safest bet. If you are interested in accessing your home equity and keeping your low rate first trust in place, we are here to help you review and assess your best options. Please do not hesitate to contact us today.
George H. Omilan
President-CEO - NMLS# 873983
Jefferson Mortgage Group LLC - Mortgage Specialists
Programs: Traditional QM (Fannie Mae, Freddie Mac), government insured HECM Reverse Mortgages, and Non Traditional Non-QM Mortgages commonly referred to as Specialized Forward Mortgages including “Alt-A Investor loans” and DSCR (Debt Service Coverage Ratio) loans up to 85% LTV, both Full doc and No Income-No Employment (No Doc) for the investor community. Our expanded niche products also focus on the more traditional FHA & VA with Lower Score and higher Debt-to-Income Options, Fixed & Variable Jumbo loans, and Private Label Reverse mortgages for higher priced homes. We are also highly focused on specialized loans for the Self-Employed borrowers with our Bank Statement & Asset Dissipation Programs. We are committed to offering a full range of “Non-QM Loans” for expanded qualification, where the banks and large-scale lenders dare to go.