Can I Use Any Bank That Offers a HELOC?

By John Hewitt

  • Overview

    Can I Use Any Bank That Offers a HELOC?
    Home equity lines of credit (HELOCs) are revolving, adjustable rate accounts that use home equity as security. They are offered by both banks and exclusive lending corporations. Most such home equity loans, however, are offered by full-service commercial banks that can be contracted for other financial services like savings accounts.
  • Function

    A home equity line of credit goes through two main phases: the draw period and the repayment period. During the former, the borrower is allowed to borrow money from the account up to the limit set by the lender. with no repayment necessary. When that period expires, the repayment phase begins, and the borrower can no longer draw money from the account, and must pay it back with interest.
  • Significance

    Some mortgage lenders are not full-service commercial banks. These companies often offer home equity lines of credit in addition to their various real estate financing packages. Even so, these companies are subject to all relevant banking and lending regulations at the state, local and federal level. Pay close attention to all of the material that they provide, and take care to assert your rights as a consumer by ensuring that all relevant information is provided.


  • Considerations

    The Truth in Lending Act requires that all home equity line of credit providers include several crucial pieces of information about their program before signing any contracts. The lender must clearly state the length both both draw and repayment periods, explain minimum period payments, disclose all relevant fees, tax requirements, disclose what index is used to determine interest rate adjustments, discuss the tax implications, how often the annual rate changes and explain the meaning of negative amortization.
  • Warning

    All home equity lines of credit are adjustable rate loans. This means that although the advertised starting rates may seem low, in almost every case, lenders will only adjust their interest rates upwards as time goes on. This can lead to many borrowers ending up paying far more for their home equity line of credit than they ever expected. The burden is somewhat alleviated by the tax deduction most always available for paying interest on a home equity line of credit.
  • Potential

    Home equity lines of credit are excellent options for homeowners who have built up plenty of equity on their home, need some additional financing and are looking for some tax deductions. Unless they can pay back whatever they borrow during the draw period relatively quickly, they may find that they end up losing part of their home equity to pay back the loan. In most cases, the best way to use a home equity loan is to use it for a home improvement that will improve the value of the home itself.
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