Equity Lines of Credit
– An equity line of credit has predetermined dollar amounts, terms and rate structures, usually adjustable rates. Secured against real property, the funds borrowed are against the equity in the home, thus the name “equity lines of credit”. The available funds can be borrowed via check or sometimes a credit card and then repaid in full or with monthly installments.
Similar to the use of a credit card, if a balance does not exist, then payments are not required and interest is not charged, although some may have an annual fee for servicing. They are usually for a fifteen or twenty five year period.
Similar to a second mortgage, they can also be used in conjunction with a first mortgage during a purchase transaction to avoid the need for mortgage insurance at higher loan to values. Any requested funds are disbursed at the close of escrow and then are paid back on the predetermined terms.
Refinancing a loan is the process of taking a loan or loans to pay off an existing loan secured by the same property and typically by the same borrower’s.
There are essentially two types of refinance products:
• Rate and Term
• Cash Out
A rate and term refinance is one in which the objective is to change the interest rate (ideally lower) and the term (usually extending it) in order to obtain a lower and more manageable monthly payment. A cash out refinance is one in which a larger loan is taken out to pay off a smaller one, with the difference in cash (equity) going to the homeowner.