What is a Line of Credit?

  A “Line of Credit” is a mortgage that is a revolving line of credit.  The interest rate adjusts only when the Federal Reserve raises or lowers the Federal Discount Rate.  Banks then immediately adjust the Prime rate, which is the cost of money that Banks charge their best customers. When a Bank raises or lowers Prime your loan will adjust upwards or downwards. The Federal Reserve doesn’t adjust rates monthly so your “Line of Credit” could stay at its current interest rate for months, sometimes a year or more.

  The “Line of Credit” can be a first or second mortgage on your home depending on whether or not you have any outstanding mortgages on your home at the time that you apply for a loan. 

 A “Line of Credit” is a loan that does not require payments on it until you use it.  For example, if you were to borrow $50,000.  The Bank would record a lien on your home for $50,000.  If you don’t take a draw against this loan there would not be a payment assessed against you ever.  When you start taking draws on your line of credit you would then be assessed interest only on the amount that you borrow.

  The line of credit allows you to borrow money up to the amount that you initially borrowed.  You can pay it off or pay it down and continue to use your “Line of Credit” remaining balance over and over again during its draw period.

  When the “Line of Credit” matures, you must either pay the remaining balance off,  refinance your home or in many cases your “Line of Credit” will automatically become a fully amortized loan for a period of years with equal monthly payments (still tied to prime) and the draw feature during this period will no longer be able to be used.

How does a “Line of Credit” Work?

            The formula for a line of credit is:

 Index + Margin = Note Rate

  The index for most “Lines of Credit” is Prime. The margin is a number that is added to Prime. A typical margin ranges from zero to 2.5.  When you add both numbers together that is the interest rate that you are paying for your “Line of Credit”.

  The “Line of Credit” comes with a 10 year draw period. You are obligated to pay no more than interest only on the “Line of Credit”, principal reduction during this 10 year period is optional.

  You figure your monthly payment the following way:

 Loan Amount x Interest Rate = Annual Interest  

Annual Interest Divided by 12 = Monthly Interest.

  Your interest payment is determined by the outstanding amount of your “Line of Credit”.  When you establish your line of credit, the higher your loan amount the lower your margin. The Bank will reward you with a lower margin because you borrowed more potential money.  Keep in mind that it is advantages to borrow the maximum line of credit that you can qualify to obtain. Remember you only pay interest on the amount that you borrow so it won’t hurt you to maximize your loan so you can obtain the lowest interest cost.

 What Cost our associated with a Line of Credit?

 One of the great benefits of a “Line of Credit” is the upfront cost.  Usually there are not costs,  that includes no points, lender fees, title fees and any escrow fees.

  The only time you can pay cost on a line of credit is if the loan we are trying to obtain for you doesn’t meet our guidelines.  For example, your credit score is to low. We then would offer you a loan from a different program.

What does it take to qualify for a Line of Credit?

  To qualify for a “Line of Credit”, you must meet a minimum credit score number.

 In addition there are debt ratios and maximum loan to value requirements. When you apply for a “Line of Credit” we will check out these minimum requirements up front before beginning your loan processing. This way we won’t waste your time.

  How do you apply?  You need to fill out our express loan application.  We have made it very simple for you to do this.  Call my offices at 800-839-3536 #227 and I can take your loan application over the phone. You can also download a loan application, fill it out and fax it to my offices at 714-891-0212.  Finally, you can fill out the “Express Loan” application on line.  Any way works, please do the one that is most convenient for you.

 How long does the process take to obtain a Line of Credit?

  The length of time required to obtain your “Line of Credit” can vary from two weeks to six weeks. Typically, a line of credit is completed within two to three weeks.

At different times of the year the volume of business goes up and bottlenecks can occur.

When you apply for a “Line of Credit” we will let you know the approximate closing date.

What do I need to do to get started?

  To get started review the program highlights on the next page.  Decide what loan amount you want. Fill in our “Express Loan” application and leave the rest to us.