Direct lender LoanDepot has launched a so-called “digital HELOC” to help homeowners tap into their massive amounts of home equity.
The Southern California-based company cited the fact that the average homeowner now has about $300,000 home equityAccording to a CoreLogic report from Sept.
While they may not have as much today, due to recent pressures on home prices, millions of Americans have home equity that is ripe to be tapped.
This is especially true if they need the cash and hold a low fixed rate mortgage in the 2-4% range.
With first mortgage rates now above 7%, a second mortgage such as a HELOC may make a lot more sense than refinancing.
How LoanDepo Digital HELOC Works
The company says that instead of requiring meetings, phone calls and visits to the bank, you can apply for their HELOC from the comfort of your couch.
Prospective customers can get no-obligation quotes without affecting their credit scores, and go from a quote to a closing in as little as seven days.
Once you submit an application, a hard inquiry from one or more consumer reporting agencies will appear on your credit report.
And like the first mortgage, the company will still need to conduct income, asset and employment verification.
But thanks to new technology, much of this can be done paperless and digitally, by linking accounts and plugging into data sources.
LoanDepot also notes that funding deadlines may be extended if additional time is needed to conduct a desktop evaluation.
But overall the underwriting process is expected to be faster. and no third-party fees and no prepayment penalty,
LoanDepot Digital HELOC allows loan amounts up to $250,000
With regard to HELOCs, homeowners can access between $50,000 and $250,000 of their home equity.
The line is repaid through a 10-year interest-only period followed by a 20-year variable repayment period.
During the initial 10-year interest-only term, you can make additional draws if necessary while paying off your original line.
Minimum of 75% of the requested line amount (minus origination fee) should be prepared at the time of funding.
For example, if you get a $100,000 line of credit, you’ll need to take out $75,000 initially, which is less than the origination fee.
Speaking of that fee, it is 2.5% (unless otherwise limited by state law) for any application received by December 15, 2022.
At the $100,000 line, you’re looking at $2,500 in principal costs. It is unclear whether they charge other closing costs as well, but they note that there are no third party fees.
Once the 10-year interest-only period is over, you should start making fully amortized payment Including principal and interest for the remaining 20 years.
Currently, the LonDepot Digital HELOC is available in Arizona, California, Florida, Pennsylvania, and Washington.
As part of their phased national roll out, they expect to introduce it in more states across the country by early 2023.
How To Determine If A HELOC Is A Good Deal?
tied to HELOCs Prime rateWhich is the same for everyone and is basically set by the fed funds rate.
Currently, it stands at 7%, up from 3.25% in early 2022. it is expected up to 8% increase Until early next year, but then probably top out.
While you can’t control the prime rate, you can shop around and find the lowest margin, which combined with the prime rate determines your fully indexed rate.
For example, one company may have a margin of 1%, while another may have a margin of 2%.
If prime were 7%, you would be looking at a rate of 8% or 9%, respectively. So focus on margin.
Additionally, keep an eye out for origination fees. This is what the banks or lenders charge for taking the loan.
If you can find a company that only charges 1% origination, that’s a win. Also note any closing costs, annual fees and prepayment penalties.
As with the first mortgage, take the time to compare and get several quotes. See also closed-end, home equity loan Which come with a fixed interest rate.
In recent months, many banks and mortgage companies have launched second mortgage products as an alternative to cash out refinancing.
Read more: Cash Out vs HELOC vs Home Equity Loan