馃攳
Equity Loan Versus Line of Credit Described $$$ - YouTube
Channel: Mortgage Education & Finance with Stephanie Weeks
[0]
- Maybe the property
needs some improvements
[2]
that you don't have the cash to pay for,
[4]
but you have the equity.
[6]
You can get it home equity line of credit,
[8]
utilize that to do all your repairs,
[10]
put your house on the market.
[12]
Don't forget, you're
gonna be having to pay off
[14]
your first mortgage and a
home equity line of credit
[17]
whatever fees and prorations that are due
[20]
as well at that sale.
[21]
And then you're gonna net that difference.
[24]
By the end of this video,
you're gonna know the difference
[27]
between a home equity line of credit
[30]
and a second mortgage.
[31]
So stay tuned and I'll
give you all the scoop.
[34]
For your one stop-shop anything
[36]
and everything mortgage education
[38]
you've come to the right place.
[41]
I dropped my videos every
Tuesday and Saturday.
[44]
So please subscribe and don't forget
[46]
to hit the bell to be notified.
[48]
My name is Stephanie Weeks,
[50]
and I have helped thousands
and thousands of customers
[52]
with their mortgage financing
over the last 17 years.
[56]
I've been recognized in
the top 1% of loan officers
[60]
in the country for loan production
[62]
by Mortgage Executive Magazine
for the last several years.
[67]
And I cannot help everyone in every state,
[69]
so my goal is to spread mortgage piece
[72]
by sharing my knowledge.
[74]
We are going to go through today is
[76]
second mortgage versus
home equity line of credit,
[79]
how it affects the liens
or title on your home.
[83]
I'm gonna explain a home
equity line of credit.
[86]
I'm going to explain a second mortgage.
[90]
Then I'm going to talk about the benefits
[92]
of a home equity line of credit.
[95]
And then I'm gonna talk about
[96]
the potential benefits
of a second mortgage.
[100]
Then I'm gonna finish up with number six
[102]
which is a huge, huge tip that
most people do not realize.
[107]
If you have a first mortgage
[108]
and a line of credit or second mortgage,
[110]
this can affect you in multiple ways
[113]
when you go to sell and refinance.
[115]
So these six topics are super huge today.
[118]
I'm gonna break them
down one by one as always
[120]
and simplify everything
to make it easy to follow.
[124]
Let's dive right in.
[127]
Number one, a home equity line of credit
[130]
or a second mortgage is a mortgage.
[133]
Both of them are mortgages
[135]
that affects the title to your home.
[138]
And what I mean by that is
[140]
if you have no mortgage on your home
[143]
and then you go get a second mortgage
[144]
or you go get a home
equity line of credit,
[147]
you no longer own your
home free and clear.
[150]
There is a lien against it basically.
[154]
And that's different in
each different state.
[156]
But they both do go against the lien
[160]
against your home, against your title.
[162]
They both will affect your loan to value
[165]
or your combined loan to value.
[168]
It is something that you have to pay off
[172]
if you sell that property
[174]
because you are giving that
property as collateral.
[178]
Number two, I'm gonna explain
[180]
the home equity line of credit.
[183]
It is almost like a credit card.
[186]
And I'm saying that
[187]
because it's easy for
some people to follow.
[190]
It's like a credit card
[191]
and the way that you have
a limit, let's just say
[194]
it's $100,000 in this example.
[198]
And if you don't use it,
[200]
you have no charges against it.
[202]
Then you have no payment
and you pay no interest.
[207]
But it's there for you to utilize.
[208]
And you can write checks just
[210]
as if it was a checking
or savings account.
[212]
It's a line of credit.
[213]
Then if you use it, let's say
[216]
that you have $100,000 line of credit,
[218]
you use $20,000.
[220]
Then your payment that
month is going to be,
[224]
here's the key factor
interest-only, 99% of the time.
[228]
There are some different lines
of credit that might have,
[231]
have you make like 1%
payment of the balance
[234]
but for the most of them,
they are interest-only.
[238]
So even though you have access to 100,000
[241]
if you have a balance of 20,000,
[243]
your monthly payment will be based on
[245]
that balance at your going rate
[248]
which is not fixed on a line of credit.
[251]
The interest rate is not
fixed on a line of credit.
[255]
It is a floating rate that is based on
[259]
the prime rate of money and a margin
[261]
depending upon your bank
and what they charge you.
[264]
So the monthly payments are
minimum-only required payments
[268]
based on the interest portion only.
[270]
If you make those minimum payments
[272]
and you're not paying the 1%
[274]
or have another agreement with your bank,
[276]
if it's like most of them,
[278]
you're making those
interest-only payments.
[279]
You're not paying down
any of that principle.
[282]
Make sure you understand
and you realize that.
[285]
I want you to know all the pieces
[286]
and parts of what you're getting.
[288]
So the line of credit is going to be not
[292]
a payment based on what your limit is
[293]
but a payment based on
what your balance is.
[297]
It is an adjustable rate mortgage.
[299]
It is not fixed.
[300]
And most of the time,
the monthly payments are
[302]
minimum payments required
of only interest-only.
[306]
That is gonna be different
[307]
than the fixed-rate second mortgage.
[309]
So let's dive right into that right now.
[311]
That is number three as promised.
[314]
A fixed-rate second mortgage is principal
[316]
and interest repayments.
[318]
It's a fixed interest rate,
not an adjustable rate,
[322]
like a line of credit.
[323]
it's principal and interest payments,
[326]
not interest-only like a line of credit.
[329]
But if you take out that $100,000
[331]
that we used in our previous example,
[333]
your payment will be
based on the principal
[336]
and interest to repay the whole 100,000
[339]
even if you just took the money,
[340]
put it in your bank
[341]
and you haven't even used it yet.
[343]
You're gonna make payments on that loan.
[346]
It's not a line of credit, it's a loan.
[348]
As you can see, line for
liner example, for example,
[352]
it is very different
than a line of credit.
[355]
So make sure you know the difference
[357]
so that you know what you're getting.
[358]
There are going to be
pros and cons to both.
[360]
And we're gonna dive into those
[362]
and those next couple of topics.
[363]
I'm gonna cover for you.
[365]
We're onto number four.
[367]
And that's gonna be the benefits
[368]
of a home equity line of credit.
[372]
There are people that
might be a Savvy Investor
[376]
or someone that gets
paid lots of commission,
[379]
or they have big bonuses that come in.
[382]
Those are just a couple of examples
[385]
when a home equity line of
credit might be a good thing.
[389]
If you are, one example would
be purchasing real estate,
[394]
and maybe you're going to auctions,
[396]
which a lot of times
require huge down payments
[399]
or deposits at auction
[401]
if you, your bids accepted.
[404]
And you're gonna get a much better deal
[407]
if you can pay cash for real estate.
[410]
A home equity line of
credit might allow you
[412]
to do that if you're an investor.
[414]
You can take in this example,
[416]
your $100,000 line of credit,
[418]
you may go make offers on properties
[420]
or offers at auction.
[422]
And you can just go ahead
and write the check,
[424]
secure the property at
the best possible price.
[427]
Then you can come back to your bank
[430]
or your loan officer, your lender,
[432]
and you can refinance to
pay yourself back for that,
[435]
or maybe you're just
gonna flip the property
[437]
and you hope to sell it
within two or three months
[440]
and only have two or three months
[441]
of those interest-only payments to make.
[444]
That's an example of
[445]
when a line of credit would be tremendous.
[448]
Another example would
be is that if you know,
[450]
you have some big purchases to make,
[453]
but like I mentioned,
[454]
you're someone who gets big bonuses
[455]
or big commission checks that you know,
[458]
that you can write a quick
check with your line of credit
[460]
for whatever that purchase item is.
[463]
And then you're gonna
be able to hammer down
[464]
on that balance real, real quick,
[466]
or even in one swoop
if you're lucky enough
[469]
and get that paid right back.
[470]
So it's more of a, a
temporary type of financing
[474]
that might give you
leverage for your purchases.
[478]
That's another really good example of
[480]
when a home equity line of credit will be
[483]
a great option for somebody.
[485]
Another example might be, let's say
[487]
that you're gonna be selling your property
[489]
in the next six months.
[490]
You don't want to go through
a full blown refinance.
[492]
But maybe the property
needs some improvements
[495]
that you don't have the cash to pay for,
[497]
but you have the equity.
[499]
You can get a home equity line of credit,
[501]
utilize that to do all your repairs,
[504]
put your house on the market.
[505]
Don't forget, you're gonna be having
[506]
a pay off your first mortgage
[508]
and home equity line
of credit whatever fees
[511]
and prorations that are
due as well at that sale.
[515]
And then you're gonna net that difference.
[517]
We've actually had people
that didn't realize
[518]
they had to pay off that line of credit.
[520]
And you do.
[522]
And of course that's a really big deal.
[523]
So make sure you know and understand that.
[527]
But those are some examples, just a few.
[528]
I'm sure there's many more
[530]
where a line of credit would be really,
[532]
really good for you.
[533]
Where it's not gonna be good for you is
[536]
if you're not gonna be
able to pay it off quick
[538]
through a sale or a bonus or commission,
[543]
or maybe you're selling other
real estate, whatever it is,
[545]
if you can't pay that off pretty quickly,
[547]
a home equity line of
credit in my opinion,
[549]
is great to use and pay back,
[550]
use and pay back, use and pay back.
[552]
It is not long-term financing.
[554]
It's a great short-term financing.
[557]
If you need something more a long-term,
[560]
that's gonna be a
fixed-rate second mortgage.
[562]
We're gonna go into those benefits now
[564]
as promised that's number
five in today's video.
[567]
Number five, the benefits of
a second mortgage explained.
[573]
I love that you paid
principal and interest
[575]
because we are human and life happens.
[578]
And we have the intention
to pay things off,
[580]
and the next thing you know, you don't.
[582]
And that is not a good place to be.
[584]
So it's nice to have
that structure of having
[587]
a principal and interest
payment that's required of you,
[591]
so that, you know, one,
your rate is fixed.
[594]
What is that rate?
[595]
It's typically quite higher
[597]
than a home equity line of credit?
[599]
Yes.
[600]
That could be viewed as a negative.
[601]
I totally understand.
[603]
Fixed rate, fixed terms.
[606]
You know what's gonna be paid off
[607]
at a certain date and what that date is.
[610]
It's going to be principal
and interest repayments
[613]
so that you don't get
yourself in that trick bag of
[615]
only paying interest in
every paying that principal.
[618]
That's another great thing as well.
[620]
So maybe if you need more
of long-term financing,
[623]
instead of short-term financing,
[625]
a fixed-rate second mortgage is going
[627]
to be a great option for you.
[629]
Number six, last but not least.
[633]
This is so important.
[635]
I cannot explain how
important this is to you.
[638]
If you're going to sell your property
[640]
and you have a line of credit
[641]
or a second mortgage with a balance,
[645]
you have to pay it off when
you sell that property.
[648]
You gave that property as collateral.
[651]
That's very important.
[653]
A lot of people don't realize it.
[654]
So make sure if you're
going to sell your home,
[657]
that either you're accounting for it,
[658]
or you make sure to tell your
realtor to account for it.
[660]
You have a first lien
[662]
and a second lien to be paid off.
[665]
When you're trying to calculate
[666]
what those sale numbers
are gonna look like
[668]
and what you might net from
the sale of that property.
[671]
Another thing that people don't realize
[674]
when you're going to refinance,
[675]
if you have a home equity line of credit,
[677]
and even if there's no balance,
[680]
you still have that lien against the home.
[683]
That is a number.
[684]
And I'll go back to my $100,000 example.
[687]
You've got that $100,000 out there
[689]
and available to you.
[691]
That affects your combined loan to value
[695]
if you go to refinance.
[697]
Please make sure that
you let your lender know
[701]
that you have a second mortgage out there.
[704]
Also let the title company know.
[706]
Yes, most of the time it'll
be in your credit report,
[709]
but sometimes it's not.
[711]
And yes, most of the time
I would love to think
[714]
that you would remember
to tell your lender this
[715]
and put it on your application.
[717]
But a lot of times people forget.
[719]
And of course, I would love to believe
[721]
that you would let the title company know
[723]
about all the liens
when you talk with them.
[726]
But guess what?
[727]
People have forgotten that as well.
[729]
And then your weeks into your process,
[732]
the title commitment comes back.
[734]
And there's a second mortgage
out there in line of credit
[737]
that has a open-ended
balance of 100,000 here,
[741]
even I'm sorry,
[741]
limits, even if there's no balance.
[744]
And that still affects the interest rate
[747]
on your first mortgage, yes.
[749]
Because your interest rate is
based on your loan to value,
[751]
but also your combined loan to value.
[755]
This is crucial when you are refinancing.
[758]
The same thing goes for a second mortgage.
[761]
Probably it will show up on
credit, but maybe it won't.
[764]
You have the opportunity
at your loan application
[767]
to say that you have a second mortgage.
[769]
You have the opportunity
[770]
when the title company quizzes you
[772]
to say that you have a second mortgage.
[774]
It's very important data
to share with your lender
[777]
because it's gonna affect
that combined loan to value,
[780]
and also can change what
your first mortgage is like.
[783]
I'm not gonna get too far
down the rabbit hole here
[785]
because I can go pretty far.
[787]
But if you've got that second mortgage
[790]
and you don't plan to
pay it off and close it,
[793]
then you have a loan to value
[794]
and a combined loan to
value which do not match.
[797]
If you go, "Oh my gosh,
I forgot about that.
[799]
Yes, let's pay it off."
[801]
You just took your rate in term refinance
[803]
to a cash out refinance
[805]
which has more limits,
loan to value limits,
[809]
combined loan to value limits
more than with a rate term.
[813]
And here's a bigger kicker.
[814]
It's a different interest rate,
[816]
and it's the higher interest rate.
[817]
So please, don't forget
to tell your lender
[820]
about any and all mortgages
against your property.
[824]
I really, really hope
this helps going through
[826]
these six different topics
[828]
about home equity line of credit
[829]
versus fixed-rate second mortgage.
[831]
If you have any questions of course DM me,
[834]
you know, I love talking with everyone
[836]
and answering all of your questions.
[838]
I hope these six things we've covered
[839]
today has been a lot of help for you,
[843]
and I appreciate watching.
Most Recent Videos:
You can go back to the homepage right here: Homepage