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Should I Use A HELOC To Buy San Diego

Foreclosures and REO's?

I'm sure that you have heard a number of obscure terms tossed around in the world of San Diego foreclosures and REO's. Have you ever someone use the term HELOC, pronounced HEE-lock?  This is the financial industry's abbreviation for Home Equity Line of Credit. A HELOC is a loan with a maximum amount based on the available equity in the borrower's home, which could be used as capital to invest in San Diego foreclosures and REO's. Now, we are getting somewhere! Equity is the difference between a home's value and the full amount owed on the home. A HELOC is different from a home equity loan because a HELOC is a line of credit rather than an advancement of an entire sum all at once.

There are both advantages and disadvantages to a HELOC. The biggest advantage most borrowers realize is the tax-deductible interest. In most cases, individuals who itemize when filing their federal income tax can deduct the annual interest paid on a HELOC. A HELOC is also not viewed by creditors the same way as a second mortgage in terms of overall debt. However, a HELOC is not advantageous in every circumstance.

The disadvantages of a HELOC include variable interest rates, which are almost always the case. This means that in most situations, the interest rate attached to a HELOC will rise over time. How much and how often depends on the lender's terms and the borrower's credit rating. Additionally, many times a HELOC requires only regular repayment of interest only, meaning the principal may never decrease if the borrow pays only the minimum payment due each month.

A HELOC has a degree of flexibility that other loans do not have, including access to a maximum amount without actually using it and varying degrees of repayment terms. Though a HELOC is different than a home equity loan or second mortgage, it is still a loan secured by the borrower's home as collateral. Thus, failure to adhere to the agreed upon terms of a HELOC can, and often does, result in foreclosure. Before agreeing to a HELOC as a way of funding a major purchase or creating accessible credit, it is best to consult with a financial advisor or lending professional.

 

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