Exploring Home Equity Loans in San Diego California

presented by John Correll, CRMP

A Reverse Mortgage as an Alternative Home Equity Loan in San Diego and California

In recent years, San Diego and all of California have experienced a significant rise in home values, making it an attractive destination for homeowners and real estate investors alike. San Diego is the “posterchild” of coastal charm with the ideal “Mediterranean” weather making it a highly desirable place to live. As a major US city with a thriving job market and vibrant cultural scene, these things have also contributed to this remarkable growth in property values. As homes in San Diego appreciate in value, homeowners have found themselves sitting on a substantial amount of home equity. This newfound equity has paved the way for an increased interest in home equity loans. Inflation has also arrived increasing the cost of everything, as a result, homeowners are now leveraging this equity to fund various financial goals, such as home renovations, debt consolidation, or educational expenses.

   

In this article, we will explore the various types of home equity loans available. There are certainly many ways to “tap” into their home’s equity and we will highlight a few of the major ones. By accessing home equity, San Diego residents are not only enhancing their living spaces through funding home improvements but many also leveraging their home’s wealth to secure a brighter financial future through many creative uses.

   

What is a San Diego Home Equity Loan?

A home equity loan is any type of home loan or mortgage that allows homeowner to borrow money using part of the equity they have built up in their homes as collateral. Home equity by definition is the difference between the current market value of a property and the outstanding balance on the mortgage.  While most people think of a home equity loan as a 2nd mortgage or a line-of-credit, there are actually many versions which have variations on the repayment schedule as well as the way the funds can be accessed.

   

There is no “one size fits all” when it comes to home equity loans.  There are various types including how the funds are drawn and disbursed to the borrower as well as how the loan itself is paid back to the bank or mortgage company that lends the money out.  Here we will explore the major types of home equity loans from the common traditional “HELOC” Home Equity Line-of-Credit to some more innovative products like the reverse mortgage line-of-credit which is often an overlooked loan choice.

   

Ways to Receive Funds From a San Diego Home Equity Loan

  

There are 3 main ways to receive the funds from a home equity loan.  Not all home equity loans offer each disbursement option as they vary from product to product and lender to lender.

   

LUMP SUM AT CLOSING:  With this option, the borrower will receive all of the funds from the home equity loan at the time of closing in one large payment, generally at the close of escrow.  This is what is known as a “closed end loan” meaning that no future draws are available to the borrower after closing.  The only way to obtain more funds would be to refinance the entire loan balance into a new loan.  With this option, the borrower starts with a larger loan balance as all funds are paid out and will start to accumulate interest based on the loan amount.  One advantage of the lump sum is the borrower has the security of receiving all funds upfront which means there is no risk of the lender closing their access to them in the future which has happened with some home equity loans in past real estate crashes like we saw in 2007-2011 period.

   

LINE OF CREDIT (LOC):  A line of credit (LOC) is a another option where the borrowing limit that can be tapped and accessed by the borrower on a “as needed” basis by the borrower into the future. During the draw period, the borrower can take money out as needed as long as there are still available funds in the line-of-credit that can be drawn – generally this is up to the borrowing limit. As funds are draw out they are then added to the loan balance owed. Generally speaking, as money is repaid, it can be borrowed again in the case of an open line of credit.  There are some variations on the way the line-of-credit works and those will vary from lender to lender.  Most HELOC home equity lines of credit offer a 10 year draw period where funds can be drawn – but this will also vary.  The reverse mortgage HECM line-of-credit has a lifetime draw period as long as the loan is in good standing.  Its important to understand the draw period before you close on the loan.

  

TERM PAYMENTS – MONTHLY DISBURSEMENTS:  This option allows the borrower to setup a schedule where monthly disbursements are sent to them each month for a set number of years.  Funds are generally deposited into their bank account each month at an amount and will occur automatically.  This option offers a stream of funds to supplement income.   This option is less common on traditional home equity loans and more common with a reverse mortgage home equity loan.

   

Ways a Home Equity Loan is Paid Back

  

It is important to consider how the home equity loan itself is to be paid back.   Different types of home equity loans have different repayment schedules. Its vital to know this before the borrower secures and closes on the home equity loan as it will impact the borrower in future years while the loan is in repayment –  including the risk of foreclosure if they cannot meet the repayment schedule.  Most home equity loans involve monthly payments – although reverse mortgages do not have a monthly mortgage payment requirement.  (on a reverse mortgage the borrower has to continue to live in the home and continue to pay ongoing property taxes & homeowner’s insurance bills) plus maintain the home.  This can offer substantial advantages such as lower cost of living and lower risk of foreclosure.

   

Repayment on a Traditional Home Equity Loan

  

The borrower on most traditional home equity loans have a repayment schedule where the borrower is required to make monthly payments to the lender or they will risk losing the home with foreclosure.  On most HELOC (home equity line-of-credit) loans, during the draw period the borrower makes “interest only” payments which are lower and then after the draw period closes (generally 10 years).  When the draw period ends, the borrower can no longer access the line-of-credit and must repay the loan to the bank in both principal and interest payments – often times over the next 20 years.  When a traditional home equity loan converts from “interest only” to “principal and interest” the monthly payment can skyrocket. This is why its important to ask questions and read the paperwork before securing the home equity loan.  There have been many homeowners who get into trouble after the interest only period has ended and and full repayment begins and some have even gone into foreclosure.

  

1. Interest Only Repayment Period:   Borrower’s minimum payment required is the monthly interest that accumulates on the loan based on current loan balance.  This is payment amount is lower than a full principal and interest payment.  The interest-only payment made will cover the interest and no reduction to principal or loan balance unless the borrower elects to pay additional amounts on top of the min required interest-only amount.
2. Principal and Interest Repayment Period: When the home equity loan requires a principal and interest payment the monthly payment required is larger than interest-only as it also includes a principal payment.  This means part of the payment each month will reduce the loan balance and generally over time the borrower pays the loan balance down to zero.
3. Balloon Payment:  If the home equity loan involves a “balloon payment” then at a predetermined period the borrower must repay the entire loan balance in full. Some home equity loans have a balloon payment requirement so its important to review loan terms upfront to avoid any surprises down the line which could put the borrower and the home in jeopardy.

   

Repayment on a Reverse Mortgage Home Equity Loan

   

A reverse mortgage home equity loan has a very unique repayment schedule.   With a reverse mortgage there is no monthly mortgage payment requirement.   The borrower is only required to live in the home and continue to pay their ongoing property taxes, homeowners insurance bills, HOA dues (if any) plus maintenance expenses on the home. Of course all traditional mortgages require the borrower to pay the taxes/insurance/hoa dues and home maintenance costs so the main unique item is the occupancy requirement.  With a reverse mortgage, the borrower can choose to make monthly or period repayments but they are not required.

This flexible repayment schedule is what gives a reverse mortgage a lot of its popularity and ability to improve cashflow during retirement. 

  

NOTE: Reverse mortgages are only for older homeowners – the min age requirement is 62 for the FHA-insured HECM Reverse Mortgage (Home Equity Conversion Mortgage).  However there are some proprietary reverse mortgages that offer a reverse mortgage with a min age of only 55.  If one spouse is under the age requirement there are provisions on some reverse mortgages for the non-borrowing spouse that can still make a reverse mortgage possible.

   

Where To Get a San Diego Home Equity Loan

  

The type of home equity loan the borrower wants to obtain will dictate what type of lender or bank the borrower should consult if they want to apply for one. Traditional home equity loans and HELOCs tend to be offered by most banks and some mortgage companies. Reverse mortgage home equity loans tend to be offered by companies and lenders that specialize in them.  They can also be obtained thru some mortgage companies that have added reverse mortgages to their product mix even though they may not be their primary focus. Most large banks do not offer reverse mortgages although there are a smaller number of banks and credit unions that do offer reverse mortgages.

Reverse Mortgages are an Often Overlooked Type of Home Equity Loan

   

Accurate Reverse Mortgage is a Local San Diego Reverse Mortgage Company

  

Accurate Reverse Mortgage is a local specialist in San Diego for reverse mortgage solutions and proudly serves all of California. Our dedication lies in delivering precise, trustworthy, and ethical discussions regarding reverse mortgage offerings. The founder, John Correll, brings over 25 years of mortgage lending experience, possesses a finance degree, and holds the esteemed CRMP (Certified Reverse Mortgage Professional) designation. We only specialize in reverse mortgages. So if you are looking to find a “true expert” in the reverse mortgage field, consider making us your choice to explore ways to use home equity in retirement. I invite you to reach out to me personally at (619) 294-9820. 

  

I await the opportunity to engage in a meaningful conversation with you about your financial goals and needs in retirement. Together we can see if a reverse mortgage might work for you and review your options.

  

-John Correll, CRMP 

(619) 294-9820  |  (888) 603-1550

Accurate Reverse Mortgage Corp.

4025 Camino Del Rio S., Suite 339

San Diego, CA 92108

Licensing Info:

NMLS # 2484031, 1004396 CA Bur Real Estate Broker # 02214678, 01353015

Reverse Mortgage San Diego

Accurate Reverse Mortgage Corp is a local San Diego Reverse Mortgage Company specializing in exploring ways to use home equity in retirement. Put John Correll’s 25+ years mortgage experience to work for you

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