Recently, Dr. Thomas Patrick was featured in two articles released by Money Geek.
Experts’ Insights on Home Equity Lines of Credit (HELOC)
1. How do HELOCs’ variable interest rates work, and what are the key risks that borrowers should be aware of?
The interest rate can change periodically. Many HELOCs change once a year. The interest rate is tied to another rate, such as the prime rate. Other rates can be tied to include the Treasury bill rate and the Federal Home Loan Bank Board rate. The variable rate can go up or down. This is the risk.
2. What strategies can borrowers use to negotiate lower HELOC interest rates with lenders?
If one could raise one’s credit score, one could possibly get a lower rate. Shopping around for the best rate is an option. It is not unreasonable to find a HELOC rate that is one percentage point lower than that charged by another lender. By reducing the number of credit cards, one might lower the HELOC offering rate. Making more than the minimum monthly payment on credit card balances should help. Often, the financial institution that one banks with will give them a discount on their HELOC rate.
3. Can you provide some instances of how a HELOC might be misused and discuss the potential consequences borrowers could face in those situations?
Just because one has a HELOC line of credit does not mean the money is free. It is too easy to fall into the trap of thinking I can afford something by just using a HELOC to pay for it. Lending institutions do not always keep one informed of their current HELOC rate. My HELOC started at 3%, and I just noticed that it has risen to 8.75%. My bank did not inform me of the new rate. I only found it by digging into my bank account’s home page. Many HELOCs have been terminated.
I just received a notice from my bank stating that after October 5, 2024, I can no longer borrow against my line and that my monthly payments will be set. If one is currently making monthly payments, the payments after the borrowing time period is up can be greater than what one is currently paying. Some people fall into the trap of borrowing from their HELOC to make monthly payments. At some point, this will not be possible.
Experts’ Advice About Buying a Home in New Jersey
1. What are the key factors to consider when buying a house in New Jersey?
A rule of thumb is not to purchase a house that costs more than 2.5 times one’s income. One should shop around for the best interest rate. Interest rates alone are not the only cost. Many lenders also charge points on a mortgage. These are a one-time fee assessed at closing to get the mortgage. Often, the interest rate will be lower if one is willing to pay more points. The shorter the term of the mortgage, the lower the interest rate.
Banks charge a mortgage insurance premium if the borrower puts down less than 20% of the purchase price on the mortgage. If you are in this position, find your own mortgage insurance broker. You will likely find one cheaper than the one the bank tried to get you to use. The same applies to homeowners’ insurance. This is required, but you can insist on finding your own insurance agent.
Usually, one can get a break by using the same company that insures your car. I don’t think GEICO can insure homeowners’ insurance policies. GEICO may subcontract the homeowner’s insurance policy to another firm. Don’t let your realtor pressure you to offer a house or condo the asking price. Their commission is based on the final selling price. Realtors are required, by law, to present all offers to the seller.
2. What is the minimum credit score required to purchase a house in New Jersey?
Lenders look for a 620 score. However, if one is getting a government-backed loan, such as a VA loan, a 500 score may be acceptable.
3. What are some common mistakes that home buyers make when trying to purchase a property in New Jersey, and how can they avoid these pitfalls?
The first mistake is to buy more houses than one can afford. Another mistake is to take out a variable-rate loan under the assumption that the rate will continually fall. Payments that a young couple thinks they can handle may become more difficult if they have a baby or if one loses their job.
4. Are there any programs available to help first-time home buyers in New Jersey?
New Jersey has a program that may provide up to $15,000 in down-payment money for first-time home buyers.