At first, it was a product granting access to a huge line of credit. Even better, it was giving the option to pay interest only months after months. But there is more, the initial home based line of credit was at the best variable rate on the market for flex lines; PRIME! You think the product was good, near perfect for people looking for a flexible mortgage?
Well banks and other financial institutions improve what used to be a simple line of credit backed by a property into the most flexible mortgage product you can ever see! In this post, I go over several improvements on this innovative way to finance a house.
Create of more than one account
This happened a few years ago, you now have the possibility to split your line of credit into smaller but separate flex lines. While the total of them must always equal less than the authorized amount, you can select variable or fix limits for each of them.
Add a third party user
Even better, you can even add a third party for one of your line of credit. So let say that you want to give you child a 5K flex line in order to manage his tuition fees, you can set a fixed 5k line of credit within your HELOC and add him as a user of this portion only. Therefore, you are able to monitor his college expenses and he doesn’t have access to your whole 300K line of credit!
Include a mortgage within your home equity line of credit
You are too nervous about short term interest rates and you would like to freeze a part of your mortgage at a determined rate for a determined period; you can include it within your line of credit. For example, if you have a global credit limit of 300K and you wish to have a 200K at 5.5% for 5 years, you will sign paperwork for your fixed portion and your HELOC will decrease to 100K. With this option, you will benefit from a good rate on the variable side and you sleep well at night!
Your fixed mortgage can now communicate with your HELOC!
The most recent feature offered with lines of credit backed by a property is that you can increase the limit of your HELOC while you are paying down your fixed or variable rate mortgage. So every penny applied to the capital in a regular mortgage payment can increase your global credit limit. You can then have the possibility to use the equity underlying within your house at anytime without even the permission from the bank! This is obviously perfect for leverage strategies such as the Smith Manoeuvre or simply to manage your personal finance.
With these improvements, the new and re-designed HELOC constitute on of the best mortgage product offered by any financial institutions. I strongly suggest you meet with a financial planner in order to get all the necessary information about a home equity line of credit.
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