Radio and television ditties nag us all with promises of great mortgage deals for borrowers who have bad credit. Well, what about those of us with perfect credit? Where’s our deal?

If you are one of those home owners (or home owner wannabes) who have excellent credit and yearn for innovative ways build up home equity while preserving a low interest rate, this may be your answer. It’s not a new mortgage tool. Rather, it’s an old tool being used in a new way…and with notable success.

Many think of home-equity lines of credit, HELOCs, as “add-ons” to existing mortgages. Traditionally, borrowers use HELOCs to make home improvements, to consolidate credit card debts, and as a means to avoid paying private mortgage insurance.

How’s this for a twist? Get rid of your higher-rate first mortgage (and perhaps the accompanying HELOC) and replace it with a single, new first lien HELOC. Such loans are commonly written at prime rate which, on any given day, is about 1-1/2% cheaper than the market rate on 30-year fixed-rate mortgages.

In spite of their new reduced interest-only monthly payments, borrowers converting to first lien HELOCs often opt to keep their actual monthly payments at the existing levels to accelerate their equity build-up. In some cases, borrowers will cut up to 11 years of payments off their previous 30-year term.

Lee Moraitis, president of Atlas Mortgage Company, says, “My ultra-savvy borrowers are using first lien HELOCs as their actual checking accounts and having their entire paychecks directly deposited against this home loan. This measure results in a higher level of awareness regarding their overall debt, it reduces that month’s interest due, and helps them build up equity faster.”

First lien HELOCs are commonly approved at prime rate to 90% of the subject home’s value, and at prime rate plus 1-1/4% for loans up to 100%. They can be used both for purchases and refinances, they are an excellent choice for self-employed borrowers or those not capable of documenting their income, and their total closing costs are normally a fraction of those typical of traditional mortgages.

Timothy Phillips is a mortgage banker and newspaper columnist.  Homebuyers should always consult a professional for guidance specific to their situation.

Be first to comment this article

Only registered users can write comments.
Please login or register.

Powered by AkoComment Tweaked Special Edition v.1.4.4