HELOC’s & Seconds

HELOCS-Home equity lines of Credit

With the recent issues in the housing market, most investors have quit issuing any second mortgages. In fact many investors have frozen or closed existing open lines of credit to existing borrowers. We do still have a couple investors offering HELOCS. In the state of California the max CLTV is 75%. Most HELOCS are adjustable lines of credit, tied to the Prime Rate. Depending on credit score the loan rate could be Prime plus a percentage or even in some cases the start rate could be below Prime. The loan works similar to a credit card as interest is only paid on the outstanding balance of the credit line. As the loan is paid down the credit is available to use again. This type of loan will usually allow the use of credit for 5-10 years before the line is locked and the loan reverts to a fully amortized loan for the balance of the initial 25 or 30 year term. During the initial draw period the monthly payment is calculated as an interest only payment. (Loan amount x rate divided by 12)

Seconds-fixed period

Loans will be calculated as a fully amortized loan with no draw period. Rates tend to be higher, and generally start around 7.5% and up depending on LTV and fico scores. At this time, very few investors are funding any second mortgages.