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Home Equity Line of Credit Terms

If I get a $87,000 HELOC at 5.75%, what will my monthly payment be?

I am trying to figure the monthly payment of a HELOC. Total HELOC loan = $87k, 5.75% interest I want to take the full amount of $87k all at once and I would like to lock into a rate immediately for the full $87K. What will the loan period be and what is the monthly payment?

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Bill's Answer
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Bills.com | Find Learn Save

Allow me to define several terms and describe the financial landscape as I see it in 2010 before I discuss the facts in your question.

HELOC defined

A Home Equity Line of Credit (HELOC) is akin to a credit card secured by property. Because a HELOC Is secured by the property it is consider a form of mortgage. HELOCs are used most often by homeowners who use HELOCs for major costly items such as education, home improvements, or medical bills. No money changes hands until the borrower draws on the HELOC. A lender will use a similar analysis to a first mortgage when deciding whether to open a HELOC with a homeowner. A lender will review the potential borrower's credit score, debt-to-income ratio, employment history, and the loan-to-value ratio of the property. A lender will not do business with a homeowner if he or she is a negative outlier in one of these key criteria.

The life of a Home Equity Line of Credit is split into two periods: draw and repayment. The draw period is a span of time (usually five to 10 years) during which the borrower may withdraw money from his or her home equity line of credit. The repayment period is the span of time during which the borrower must pay back the money withdrawn from his her HELOC, which is usually 10 to 20 years.

The HELOC market has changed significantly over the last 10 years. In the 1990s and early 2000s, it was relatively easy for a homeowner to get a HELOC because home values where rising and there was a collective expectation — or delusion — that the increase would never end.

As I write these words in mid 2010, there are not many competitive HELOC products available today, especially if the combined loan to value (LTV) is high. Home equity loans and HELOCs with low rates are for adjustable-rate loans, and it is my opinion that as the economy improves we may see inflation. As inflation rises, the adjustable-rate loan rate will reset upward. This will put adjustable-rate HELOC borrowers in a difficult spot as they see their monthly payments increase. You can find fixed-rate HELOCs. However, the typical rate for these loans is around 6.5%.

Your question

Unfortunately, you did not mention three crucial variables in your message: A) The value of the home; B) How much you owe on the first mortgage; C) The terms of the Home Equity Line of Credit.

Let me assume for the sake of argument that your LTV is far less than 100%. In other words, let us assume you have far more equity in the property than $87,000. We will also assume you have a good credit history and a stable income. However, we do not know what draw period is written into the loan, or what the length of the repayment term will be.

Assuming for the sake of argument that the draw period is one day, and, as you mentioned, you took the entire $87,000 on that day, and that the repayment period is 10 years, the monthly payment will be $955. If the repayment period is 20 years the monthly payment will be about $611.

Recommendation

Rates on first-mortgage refinances are the lowest in recent history. If you have at least 20% equity after accounting for the additional cash you want to take out, and have good credit, then a first-mortgage cash-out refinance may be a smarter choice than a home equity loan, or a HELOC. This would be an especially wise choice for you because you want the entire $87,000 in a lump-sum.

To shop for mortgage refinance, visit the Bills.com mortgage refinance savings center, where you will get up to four no-cost quotes from pre-screened lenders.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

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2 Comments

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  • 35x35
    Oct, 2010
    Teri
    I applied for a HELOC. Everything was approved, excellent credit, debt is low, home equity high. Everything was complete with the exception of the appraisal. It came in low because it was a drive by. I submitted more comps, which I was told helped bring up the appraisal. (But they did not tell me by how much). Within two hours I checked the status of my application on line with Wells Fargo, and found out they were denying the loan. When I called to ask why, they stated, it is because there is a mobile home on a section of my property which I occasionally rent out. All income is reported to IRS. This was all revealed in my first phone call to them. They hold my first mortgage, it was here when I bought the house, and they told me they could not include the income from it because it was considered personal property and could be moved. Now they are using it against me as a reason to deny the loan. Is this legal. It seems quite arbitrary to use this against me, first to exclude it upfront, and then to try and include it on the back end. I live in PA
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    • BA
      Oct, 2010
      Bill
      Keep shopping. What I am about to write will not remove the sting of Wells Fargo's rebuke, but may explain the company's behavior. This is an over-simplification, but mortgage loans and refinances are two-step processes. The first step is the loan officer gathering all of the information from the applicant, usually twice or three times because the applicant either does not complete or sign the forms correctly or the loan officer loses the information. The second step occurs after the loan officer gives the completed application to the underwriter, who may work in the office next door or on the other side of the planet. The underwriter either gives a thumbs-up or thumbs-down to the application and never talks to the applicant in my experience. Sometimes the loan officer can remedy the situation by asking the applicant for more information, or sometimes not.

      Take copies of your application, including the appraisal and all of the additional information that Wells Fargo asked for, to another mortgage company. Underwriting standards are not universal, and another company may look at the mobile home as an asset instead of a liability.
      0 Votes

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