Key Highlights
- Home equity lines of credit (HELOC) allow homeowners to borrow against equity in their home
- Average interest rate on a HELOC now 4.86%, according to Bankrate
- Wells Fargo and JPMorgan Chase stopped taking HELOC applications in April
Times are tight for everyone so if you and/or your clients are homeowners, you/they might consider applying for a HELOC loan (home equity line of credit) by using your home equity for collateral in order to have a back-up source for cash.
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Interest rates on HELOCs average approximately 4.86%, according to Bankrate.com, a lot less than the 16.32% interest rate currently charged by credit cards. And, as you know, HELOCs are revolving credit lines that you can use in an emergency, repay it and continue to keep the line open.
Applications for HELOC’s are surging, just like every other loan option now available to people and businesses. As a result, some banks, specifically JPMorgan Chase and Wells Fargo, have suspended applications for the time being. No one, including banks obviously, wants to hang themselves out to dry in such uncertain times.
According to Doug Boneparth, CPA and president of Bone Fide Wealth in New York, said, “If you have this massive demand for setting up lines of credit, you as the financial officer of a company will feel cautious about opening the books to anyone and everyone – it’s likely too much risk.”
Word to the wise, if you and/or your clients are considering applying for a HELOC, shop around for one now while some banks are still offering homeowners this loan option. Know in advance, however, that there is no guarantee the bank won’t freeze the credit line and/or reduce the amount of credit available to you and/or your clients.
HELOCs do come with some restrictions.
- HELOCS usually have a stated draw period in which the borrower can borrow against their home equity…once that draw period expires, the borrower has to begin repaying the loan.
- The money MUST be used only for buying, building or improving the house that’s securing the loan, not for getting you or your clients through hard times, such as consolidating debt or waiting for UI benefits to kick in.
- HELOCs MAY have limited tax benefits, such as claiming a deduction for HELOC interest, but ONLY if the loan is being used to improve/build/buy the house that’s being used for the loan’s equity.
Thanks to CNBC’s Diana Olick.
Also read: Podcast: Will Corona Virus Fears Kill The Real Estate Market?, Will Housing Boom When States Re-Open?, Let’s Hope the 2nd Go-Around with PPP is Better than the 1st
