How Do HELOC Christian Loans Work?

HELOC stands for “home equity line of credit.” Equity is the current appraised value of a home, minus that amount still owed on the mortgage. As a home appreciates in value from the price the homeowner financed to get it in the beginning, more and more equity is built up. HELOC Christian loans allow a homeowner to borrow from this equity, putting the home up as collateral in case the money is not repaid.In order to receive one of these loans, the homeowner must pay for an appraisal to determine the value of the home and how much equity they have. The bank will only allow them to borrow up to a certain percentage of the total equity, since they want there to be equity left if the HELOC loan is not paid back and they need to recoup their money.Instead of the bank handing over the money, a line of credit is opened which allows the homeowner to withdraw from the account or write checks as they need the money. There is a “draw period” which is a set amount of time during which the homeowner can continue to take money and make minimum monthly payments. Instead of paying back the entire amount of the line of credit, they only pay back the amount they actually use plus interest. A normal draw period is within 5 and 25 years.There are cautions to be taken with HELOC Christian loans because at the end of the draw period either the entire amount loaned will be due or a repayment schedule will be set up, but those payments will be made on top of the normal mortgage payment. The interest rates are also variable so homeowners should assume it will go up during the repayment period. Also, not all lenders calculate it the same, so it is the responsibility of the homeowner to ask how it is calculated by their lender.Despite the possibility of losing the home if the HELOC is not paid back, and the extra payments that the homeowner will have, there are a few good reasons people take out these lines of credit.1. The homeowner gets to determine how much is borrowed and how much they pay on a monthly basis. While there is a maximum amount that can be taken out at any certain time, the control of how much they borrow is in their own hands.2. The interest paid may be deductible for federal and some state income tax purposes, though there are circumstances and guidelines for it to qualify for this.3. It looks better on a credit report than a second mortgage. A second mortgage is seen as evidence of a higher level of debt, while a HELOC is borrowing against the equity in your home. It is still considered a second mortgage in the financial industry, but it doesn’t seem as bad in the long run.In 2008 a freeze was placed on HELOC Christian loans by most of the major banks, such as Bank of America. This is due to the reduced value in homes and the overall economic downturn.