Hurricane Season is upon us once again in South Florida. People are checking their rations, stocking up on bottles of water, vital medicines and cans of tuna, buying batteries by the case and trying to meet the Hurricane VIP - the neighborhood roofer! All the while they are forgetting to have ready CASH in an emergency - cash that could come from a Home Equity Line of Credit (aka HELOC).
The HELOC is a life preserver when there is a sea of people out there all clamoring to get their home repairs done. Having ready access to cash is essential to quick repairs. Many contractors will be very busy and turn away business if they have to offer financing.
When a homeowner does not have cash available, we see the all-too-familiar blue tarps for months until finances catch up to repair costs...
...and when there are major repairs to do, it may be hard to get financing! A lender may not write a loan on a property in need of hurricane repairs
A Home Equity Line can solve this issue which is why I recommend one to all of my clients.
Advantages of having a Home Equity Line
- There are typically two options, the Low Cost Home Equity Line and the No Cost Home Equity Line. Both have their advantages but neither will have anywhere near the closing costs associated with a Conventional Mortgage
- The payment is low because it is an Interest Only payment. This helps the borrower afford the payments when cash is tight.
Easy access to funds
- A HELOC will have a checkbook associated with it and often even a credit card. These checks and cards draw money from the line rather than a checking account. This gives the borrower 24/7 access to their money.
- The repairs are always deductible when a state of emergency is issued. The IRS has a box to insert the repair costs due to a Hurricane. The interest paid may qualify for mortgage interest deduction as it is technically being used for home improvement. Consult with your tax professional to make sure.
- Typically the Home Equity Line is an easier program to process with less time needed.
- The HELOC can go as high as 95% Loan to Value in many cases. I prefer to see a 90% Loan to Value which leaves some equity in the home to pay for expenses in the case that the borrower needs to sell the property in the next few years.
You can evacuate
- FEMA guidelines are pretty strict. If you were able to evacuate and did not stay in the home or a FEMA shelter, then you will likely be denied assistance.
Caveats to Home Equity Lines!
No discussion of mortgages could be complete without the pitfalls!
- The HELOC payment will be in addition to the current mortgage payment on the property so you will need to qualify for the combined payment.
- Using up too much your Home Equity can flip you upside down should the market drop.
- Almost all HELOC's have some sort of prepayment penalty. It is usually small but there nonetheless.
- Home Equity Lines are Prime-Based Loans. That means that the interest rate on the loan will be determined by what the Prime Rate is at the time. Prime is currently 8.25%. There are teaser rates offered by many banks but make sure to read the fine print!
- HELOCs are Adjustable Rate Mortgages and will adjust as Prime Adjusts. There are loans that are fixed as well. You should ask about fixing the rate as an option if possible.
- HELOCs are not ATMs. The money should be used for home improvement or debt consolidation and should be budgetted carefully.
Don't wait until it is too late. Consult with your Florida Mortgage Professional today to talk about your options before the storm is in the box!