California Home Equity Line of Credit
Home Equity Lines of Credit, or HELOCs, are open-ended, revolving loans that
allow future advances up to the approved credit limit. Much like credit cards,
they offer cash when it is needed with flexible payment options during the draw
period. The draw period of a Home Equity Line of Credit is the amount of time
the line of credit is open for, usually ten years, after which the balance must
be paid.
Advances taken out during this draw period may have small monthly payments in
which only minimal amounts are paid toward the principle with the rest of the
payment going to accrued interest, or interest only payments may be made. At the
end of the draw period, many plans have balloon payments in which the monthly
payments will drastically increase to cover the rest of the balance due or the
entire balance may be due immediately. There are plans that offer repayment of
the Home Equity Line of Credit loan over a fixed period of time after the draw
period has ended.
Interest of Home Equity Lines of Credit is usually variable and tied to the
Prime Lending Rate, the rate in which most major banks charge their largest and
most credit worthy customers. These variable rates usually have a cap to limit
how high of an interest rate can be charged and some have limits as to how low
the interest rate can get. Variable rates are subject to quarterly adjustment
though some plans offer a fixed interest rate. The interest paid on Home Equity
Lines of Credit is only paid when the funds are used and is usually tax
deductible.
Like Home Equity Loans, Home Equity Lines of Credit have fees that may be
charged for taking out the loan. Some plans call for one-time; up front fees
while others have annual fees. Plans that offer low monthly payments during the
draw period may require a balloon payment at the end of the loan period
requiring the entire remaining balance to be paid. Other fees can also apply
such as appraisal fee, credit check fee, and closing costs. The Federal Truth in
Lending Act protects the borrower by requiring the lender to inform the borrower
of all costs and terms when the application is given.
California residence taking out a Home Equity Line of Credit have the option of
whether or not to allow outside and affiliate companies to have access to their
private financial information. Through the California Financial Information
Privacy Act, the lender can only disclose financial information about California
residences with other companies if it is mandatory in securing the loan. Any
other use of the information is at the borrowers’ discretion.
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