What are Home Equity Lines of Credit?
Home Equity Line of Credit is an adjustable-rate mortgage in 2nd position. 2nd position means behind the 1st mortgage. These loans are always for taking equity out of your home, without making any changes to your first mortgage.
The Interest Rate is based off of the Prime rate (Currently 3.50%) plus a margin. The margin is set by the lender. The margin is set by the lender based off the risk, FICO score and Loan to value ratio. The interest rate on Home Equity Lines of Credit are adjustable. That means it is not a fixed interest rate. The margin is fixed but the Prime rate can move.
Your payment is based off the balance at the time of the bill. It will be interest only payments for the first 10 years. After the 10 years it will go into a Principle and Interest amortized for the remaining 20 years
For the first 10 years you can draw on the line of credit and pay it back at will.
A Fixed Rate Second Loan is in 2nd position also. It is not an interest only payment and always a set loan amount. It will have payments amortized over 15, 20 or 30 years.
