Page 11 - February 2023 Issue.indd

back the loan in much the same way as a credit card, which is card secured by the equity in your home and pay the balance

a home equity line of credit or HELOC. down or off at your discretion.
Interest rates and payments on home equity loans are usually To me there is only one real downside to a HELOC, and it is

fixed for a specified period, ten to 20 years. The interest rate that the interest rate is not fi xed. The interest rate is based on

usually is 1% to 3% higher than first mortgage rates. If you the prime rate plus a margin or add on usually .5% - 1%. Every

borrowed $35,000 for ten years at 8.5% the payment would be time the prime rate moves, which is when the Federal Reserve
$434. Even though the rate is higher than a cash out refi nance increases the discount rate, the rate on HELOCs changes.

you are paying off the loan in ten years instead of 30, and you In either case, doing a home equity loan or line of credit is a
are not losing any equity you have attained by having paid on much better financial decision than cash out refi nancing to

your current first mortgage for several years. You may only what would be a higher rate based on today’s market. Many

have 27-28 years remaining.
people did cash out refinances when interest rates were at
But let’s assume you do not need all the money at one time, historic lows, they also lowered the rate on their fi rst mortgage
and you just want to have funds available to do stuff with. A at the same time.

home equity line of credit (HELOC) is the most popular type

of equity loan and works the same as a credit card. You borrow Before applying for a cash out refi at a higher rate than you are
any amount up to your limit, and you are billed interest on the currently paying call me to look at other options.
balance owed monthly. Even though you can borrow $35,000 Mr. Rowe is Vice President/Lending for Bay Capital Mortgage
and only take $10,000 to pay for a family trip to Disney, Corp. with offices in Easton and Annapolis. He has lived in
your interest payment would be $71 at 8.5% plus you may be Caroline for his entire life and supports the county by volunteering
required to pay $100 to principal for a total of $171. in a variety of ways. He currently lives near Greensboro with his
wife Jeanne and daughter Kelsey.
HELOC’s allow you to access money, pay it back, access again
pay minimum payments, access again, pay $5,000 to principal

when you get your tax refund etc. etc. Think of it as a credit

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