My hubby and I are about 12K in debt, 100% utilization, scores are completely tanked. We're looking into either a 2nd mortgage or HELOC. My broker told me that we'll get better rates with the HELOC, but I heard that a HELOC is reported as revolving, whereas a 2nd mortgage is an installment. Several questions: 1) can anyone verify that I am correct that a HELOC reports as revolving and 2nd mortgage as installment 2) how will these each affect our utilization and thus, our scores? my original thought was that we'd get the loan, pay off the credit cards, and be at 0% utilization. A little extra info: we're taking out add'l money to put in a pool, a total of $30K. So if a HELOC works as a cc as far as reporting as revolving, does that mean that if we did a HELOC it would show as $42K total available, $30K utilized, more than 75% utilization??? YUCK!!! Thanks in advance for the advice!
HELOCs are revolving. What happens is...a mortgage company determines the market value on your house. If the market value is higher than what you owe..they will open a HELOC based on that (home equity). It's convenient if you want access to available line of credit at a low interest rate. If you want fixed payments, then a Home Equity Loan might be better for you. I have a friend who has a HELOC for 40K. Of course, he doesn't have a balance on it right now, but should he need cash..all he has to do is use the attached debit card or the access checks. It's all about what you're comfortable with. If you don't use up all the equity and get a home equity loan...should you need more cash in the future, you'll have to "reapply" for more money. However, if you were to get a HELOC and didn't use up the cash...all you would have to do to get more cash is use the debit card or the access checks. Like I said...it's more about what you would be comfortable with and what would be convenient. Hope this helps.
Thanks for the quick response. Based on that, I think a LOAN is better for us... Since we pretty much know the amount we need (and can't qualify for more anyway since we're at max value) and we don't want it to affect our utilization. Thanks!
You may want to consider a closed end 2nd or heloc (same)..ask your broker. It's may not report as revolving.
helocs can be reported as mortgage or not. just depends on the creditor and their bureau. NBC bank reports to efx at revolving, EQ & TU as MORTGAGE REVOLVING, EFX is classified like a card not in mortgage. took a 70pt hit on all 3 reports. Mortgage hasnt shown up yet. heloc is nice in pinch, you can get a interest only option and pay only interest until you can afford more. This is good when money is bad (when isnt it) and the market is good (healthy growth). You can then add principal any time you want, and get your life str8.
The point of acheiving a good credit score is to be able to borrow money at a relatively better rate. It seems backwards to me to borrow money at a higher rate in consideration of the affect on your score. Usually the HEL (installment loan) is about 2% higher rate than a HELOC (revolving line of credit)
Just pulled my score, HELOC showed up had a 27 point INCREASE on EXP (other 2 are not reporting yet)! Shows as a revolving/secured. So, mine has been a good thing. HELOC rates have been better than most seconds..however, they are connected to prime that has had 3 .25% increases in the last few months. So someone may have started out at a 4% rate that is now 4.75%, but others have a margin of 2+prime or more...that's when it starts getting up there. However, the interest only payment is much easier to swallow than a 30/30 or 30/15 payment. HELOCS do not have a prepay either (most have a closing charge before a year). Overall from a lenders standpoint I'd suggest the HELOC over a traditional 2nd.
