What are HELOCS, HELOANS, and cash out refinance loans?

So you want to access your equity without touching your first mortgage rate!   Here is what to consider.  The Equity Market has changed over the last 3 years.  There are fixed HELOCS, HELOANS, and obviously cash out refinances.  

‍

HELOCS‍

What are they?  Home Equity Line of Credit; The market has changed for a HELOC in today’s market.  A HELOC use to be a line of credit that you could access for a period of 10 years and then after 10 years there was a 20 year Principle and Interest repayment period.  These products still exist but they are more difficult to qualify for. Today’s market the 2^nd lien lenders have shortened the draw period from 3 to 5 years.  Please be aware of this because you will likely need to refinance your second mortgage or HELOC if you want to continue to draw on it.  

‍

FIXED HELOC

Yeah there is such a thing now.  Its fixed based on the draw amount based on the index more times PRIME plus a fixed MARGIN.  Is this good if the Federal Reserves lowers prime over the next year. NO.  

‍

HELOAN-Home Equity Loan

Set it and forget it.  Its just a 2^nd mortgage with a principle and interest payment.  Terms are mostly 20 year, or 30 year.  Some investors offer down to a 10 year Term. Cash out Refinance-Most times  in today’s market these are written on a FHA 30 year Fixed.  Rates are fixed and there is no pre payment penalty.    Looking at the blended interest rate calculation between your mortgage and credit card debt makes this an appealing option.  The average American has over $53,000 in credit card debt.  This makes a 5.99% to 6.5% mortgage more appealing than compounded interest credit card debt at a minimum of 28% interest.  

‍

So what is right for you?  

Every situation is different but I would consider your finances, your rainy day fund and talk to a mortgage professional you can trust.  A case can be made for a 2^nd lien in a lot of instances but it will also depend on your credit score.  If you are lower than a 640 credit score a cash out refinance may be your best option or alternatively you could sell your home and payoff your debt.  

‍

Will mortgage rates ever go down?  

My belief is yes, however the hope that rates will return to 2.875% on 30 year fixed are gone.  I think we need to have realistic expectations and the new normal for a mortgage rate could be within the 5.5% to 6.875% range until the current administration corrects the economy.

‍