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Rental property loans and credit reporting advice

I have 3 prime equity lines on 3 of my rental homes, should the loan company report these as mortgage since they are mortgage l

I have 3 prime equity lines on 3 of my rental homes. They are being reported as RV loan type. They are interest only so the balances are not dropping. I think this is negatively impacting my score. Should the loan company report these as MTG since they are MTG loans?

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Bill's Answer
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Bills.com | Find Learn Save

You are asking a common question. Let us start by defining some terms.

What are home equity lines of credit?

Home equity lines of credit, or HELOCs, are not first mortgages, and are therefore not reported to the credit bureaus as secured first mortgages. Both mortgages and HELOCs are secured by your real property, but unlike a primary mortgage, which pays out the full amount of the loan amount at the time of closing, a HELOC provides you with a line of credit against which you can borrow at your discretion, up to a predetermined credit limit.

You can think of a HELOC as a low-interest credit card that is secured by your home. Like a credit card, your monthly payment is based on the amount of your available credit you have used. The repayment of home equity lines is divided into two periods, each with a different payment requirement. The "draw" period, typically the first 15 years of the loan term, is the time that you can borrow money on your equity line -- during this period, your monthly payment is usually interest only, meaning that your payment must cover the interest on your outstanding balance. During the "repayment" period, typically the second 15 years, you will no longer be able to draw on the equity line, and your payment will be calculated to repay the balance of the loan by then end of the 15 year period. Because HELOCs provide you with a line of credit which you may use at your discretion, they are frequently categorized as revolving accounts. Therefore, it is appropriate for your lenders to report your home equity lines as revolving accounts.

However, if you would like the loans reclassified as non-RV loans (e.g., simply stated as a HELOC, or a rental property loan) you should contact your lender. I cannot guarantee, but I do not believe that this will have a significant impact on your credit score.

How does a HELOC affect my credit score?

Credit scoring is too complicated a calculation for me to determine whether or not these loans are negatively impacting your credit score. If you have maxed out your available credit on the equity lines, they may be damaging your credit, as would any maxed out revolving credit account. If you are able to pay down the principal balances on these credit lines, you may reduce the negative influence they are having on your credit score. Also, you may be able to refinance these notes into a mortgage. However, you should check with your lenders to make sure you will not run into pre-payment penalties or other fees for paying off the HELOCs early.

If you want to try to refi, Bills.com makes it easy to compare mortgage offers and different loan types. Please visit the loan page and find a loan that meets your needs at: Mortgage Refinance Quote

I invite you to view Bills.com site for more information about home equity lines of credit and home equity loans.

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

Best,

Bill

www.bills.com

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11 Comments

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  • BA
    Feb, 2010
    Bill
    Banks want three things in a perfect borrower: 1) Stable income; 2) Attractive credit history; 3) Low debt-to-income ratio. If a customer is lacking in any one (or more) of these, said customer will have a difficult time getting a loan. My advice? Sell the property. Or, if you are older than 65 get a reverse mortgage.
    0 Votes

  • 35x35
    Feb, 2010
    Mike
    I have a rental property valued at $325,000.00 with no mortgage, My DTI is not so good, How can I pull a $100,000 from there. Local Banks are saying they can not give cash out on rentals.
    0 Votes

  • BA
    Dec, 2009
    Bill
    For a no-cost, no-obligation mortgage quote from pre-screened lenders, go to the Bills.com mortgage savings center.
    0 Votes

  • JL
    Dec, 2009
    Jack
    I am interested in a loan for rental property. I am looking at two properties in Florida. The value of the two properties is approx $300000 (low end) to $335000. I want a 30 year fixed rate loan for $225000 to purchase the property and combine unsecured debt. I will rent the property for $1000 to $1200 each. Please send me any info on loans that you would have available.
    0 Votes

  • 35x35
    Apr, 2009
    Eddie
    I think that how a HELOC is reported is entirely dependent on the lender that reports it, but historically they have always been reported as revolving debts. It is intuitive, if you were to put a fixed term for the loan then you would not consider it a line of credit now would you?
    0 Votes

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