Home Equity Loan Types - Offered by Orange County Specialist

Home Equity Loan Second Mortgages HELOC

Closed End Home Equity Loan

The borrower receives a lump sum at the time of the closing and cannot borrow further. The maximum amount of money that can be borrowed is determined by parameters including credit history, income, and the appraised value of the property, among others. It is common to be able to borrow up to 100% of the appraised value of the home.

Closed-end home equity loans generally have fixed rates and can be amortized for periods usually of 15 to 30 years. Some home equity loans offer reduced amortization whereby at the end of the term, a balloon payment is due. These larger lump-sum payments can be avoided by paying above the minimum payment or refinancing the loan.

Open End Home Equity Loan

This is a revolving credit loan, also referred to as a home equity line of credit (HELOC), where the borrower can choose when and how often to borrow against the equity in the property, with the lender setting an initial limit to the credit line based on criteria similar to those used for closed-end loans. Like the closed-end loan, it may be possible to borrow up to 100% of the value of a home, less any liens. These lines of credit are available up to 25 years, usually at a variable interest rate. The minimum monthly payment can be as low as only the interest that is due.

A select few home equity loans allow draws against equity with the option to lock in and “fix” the rate for the total principal balance due. Usually, there are up to 5 total locks available over the course of the loan.

Typically, the interest rate is based on the Prime rate plus a margin.