HelocBasics » HELOC Info

Your HELOC and Your "Portfolio of Debt"

Jamie — Fri, 12 Feb 2010 10:10:20 +0000

New credit card legislation takes effect later this month. However, borrowers have already encountered negative consequences from the more stringent requirements including reduced lines, higher fees, and increased interest rates.

Borrowers dealing with undesirable changes from their credit card issuers may be able to mitigate some of these problems by transferring their debt to a HELOC.

Reuters explains:

“View your credit cards and other loans, such as a home equity line of credit (HELOC), as a portfolio of debt, just as you would consider all of your retirement accounts to be an investment portfolio. Make decisions based on the portfolio in its entirety. That may mean diversifying — setting aside one card for some uses and another for different uses. Or shifting balances from a high-interest rate card to a low-interest HELOC.”

Grouping all these lending products together as your “portfoilo of debt” is an excellent way to add some perspective to the situation. By considering your HELOC alongside your credit cards, you can easily compare interest rates, fees, and other features. Often, you’ll find that you can save hundreds or even thousands by transferring debt from a high-interest credit card to a low-interest HELOC.

See Also:

Is a HELOC Right for You?

Can You "Walk Away" with a HELOC?

Jamie — Fri, 16 Jan 2009 03:11:52 +0000

A growing number of homeowners are walking away from their homes, giving their keys and their worries to the bank. It’s important to note, however, that this isn’t aways possible for borrowers who have a HELOC.

Homeowners living in a “recourse state” will still be responsible to pay off their home equity line, even if they do not own the property anymore. The HELOC lender may be able to seek a judgment against them or even garnish their wages.

CNBC expert John Ulzheimer discusses the consequences of waking away or giving up to foreclosure in a recourse state:

“Unfortunately the second lien holder (the company you owe the smaller amount) will likely get nothing out of short sale. Depending on how much you owe them and how much money you make you may be able to work with them on converting your HELOC into an unsecured loan that you will continue to pay over the next decade or two. You’re paying on a loan that gets you nothing at the end of the day so keep that in mind.”

To find out how your state handles HELOC foreclosures, take a look at this List of Non-Recourse States and contact a legal professional in your area.

Home Equity Line of Credit Comparison Worksheet

Jamie — Wed, 15 Oct 2008 02:04:34 +0000

Choosing a home equity line of credit can be difficult. When speaking with HELOC lenders you may receive so many different terms and rates that it becomes practically impossible to keep track. This printable worksheet can help. Use it to organize the HELOC information lenders give you. By the time you’re finished speaking with three lenders, you’ll be able to easily compare the loans you’ve been offered.

See: HELOC Worksheet

Home Equity Line of Credit Tax Deductions

Jamie — Fri, 10 Oct 2008 03:27:31 +0000

One of the advantages of borrowing money through a home equity line of credit is the possibility of deducting interest from your taxes.

To put it simply: If your HELOC was used to improve your home, you may deduct interest on lines up to $1 million ($500,000 married filing separately). If your HELOC used for other purposes, you may deduct interest on lines up to $100,000 ($50,000 married filing separately). Read more…

Taking a HELOC Tax Deduction

HELOC Foreclosures

Jamie — Wed, 08 Oct 2008 05:42:51 +0000

If you can no longer pay your first mortgage, your HELOC lender may be able to recoup some of their money via short sale or foreclosure. However, it’s rarely as simple as “turning in the keys.”

There are two factors to consider when facing foreclosure:

First, HELOCs are subordinate to primary home loans. This means that the HELOC lender has claim to any money generated by a foreclosure, only after the primary mortgage lender recoups their full loss. The primary mortgage lender will also use up thousands of dollars to sell the foreclosure home. In many cases, this means that the HELOC lender will not see any money when a property is foreclosed upon.

Second, almost all HELOCs are considered “recourse loans.” The borrower is personally responsible for paying recourse loans in full, regardless of their property’s value. Read more…

Q: Will Paying Off Credit Cards with a HELOC Improve My Credit Score?

Jamie — Mon, 06 Oct 2008 04:43:27 +0000

If you are using over 40% of your available credit, paying off your credit cards with a HELOC may improve your credit score. However, there are some risks involved.

Applying and opening a HELOC will give your credit score a ding. However, you may be able to increase your score significantly by transferring your credit card debt to your home equity line of credit. How much your score will improve depends on the limit of your credit line. Lower limit HELOCs are generally recorded as revolving lines of credit when determining a borrower’s FICO score. Higher limit HELOCs are generally recorded as mortgages or installment loans.

What Obligations Does a HELOC Lender Have Under the Truth in Lending Act?

Jamie — Wed, 24 Sep 2008 06:30:04 +0000

Under the federal Truth in Lending Act, the HELOC consumer is granted certain rights. Most importantly, you have the right to be given information about your HELOC before agreeing to the loan or paying any fees. You also have the right to cancel your home equity line of credit within a specified time frame. Read more…

Q: What is the Difference Between Home Equity Loans and Home Equity Lines of Credit?

Jamie — Fri, 12 Sep 2008 06:16:55 +0000

Homeowners have two major home equity borrowing options: the home equity loan and the home equity line of credit (HELOC). Both options allow homeowners to take out a loan based on the existing equity in their properties. In both cases, the property is used as collateral and may be foreclosed upon should the borrower default on the loan.

If you’re trying to decide how to borrow, take a look at this chart illustrating the most important differences between home equity loans and home equity lines of credit.

Q: Will Paying Off Credit Cards with a HELOC Improve My Credit Score?

Jamie — Thu, 11 Sep 2008 06:20:30 +0000

If you are using over 40% of your available credit, paying off your credit cards with a home equity line of credit may improve your credit score. However, there are some risks involved.

Applying and opening a home equity line of credit will give your credit score a ding. However, you may be able to increase your score significantly by transferring your credit card debt to your home equity line of credit. How much your score will improve depends on the limit of your credit line. Lower limit HELOCs are generally recorded as revolving lines of credit when determining a borrower’s FICO score. Higher limit HELOCs are generally recorded as mortgages or installment loans. Learn more…

Q: Can I Change My Mind After Closing on a Home Equity Line of Credit

Jamie — Mon, 01 Sep 2008 07:29:23 +0000

More than one homeowner has signed the paperwork for a home equity line of credit, only to decide hours later that the high fees and risk to the property’s title just aren’t worth it.

Fortunately, HELOC borrowers are legally permitted to back out of a deal if they notify the lender within three business days. Borrowers do not need to have a reason for backing out; they simply need to inform the lender in writing.

The right of rescission is only available if the home equity line of credit is secured by the borrower’s primary residence. In some cases, the rescission period may be waived if the borrower can prove the money is needed for an emergency.

For more information on the HELOC right of rescission see: Home Equity Line of Credit 3-Day Right of Rescission.