What Are Home Equity Loans and Lines of Credit and How Do They Work? #AskBellco – EP. 7


[Jack] Hello and welcome to #AskBellco, the show that answers your financial questions. To have your questions answered on #AskBellco, just send us your question on social
media using that hashtag #AskBellco. This week, we’ll be answering: home equity
loans and lines of credit. What are they? How do they work? Now, we’re gonna meet the expert who can answer that question, Jamie Slavin, Associate Director of
Mortgage Sales at Bellco. Jamie, welcome back! [Jamie] Thanks, Jack! [Jack] You are the first guest
that we have had back on the show so you’ve got some bragging rights there! [Jamie] I’ll take them! [Jack] So, what’s the difference between a home equity loan and a home equity line
of credit? [Jamie] So, at Bellco, we call our HELOAN or home equity loan and our HELOC – home equity line of credit… [Jack] It took me an embarassingly long
time to put that together but yeah I got it. [Jamie] Yeah, we call them both our ChoiceLine product and the idea behind this is really to give members choices to fit
what is going to either meet their life cycle, where they’re at in their income
or credit life, as well as loan product needs. [Jack] So what I’m hearing is that both
HELOC’s and HELOAN’s fall under ChoiceLine as products but what are they? [Jamie] Yeah,
no. Great question and really what they are is they’re a second mortgage loan
product that is secured against your home, one of which is variable and that’s
the HELOC and you can also draw and repay on that kind of like a credit card
secured against your home. [Jack] Okay, so now I’m starting to put it together so a HELOC is like a line of credit like you said it’s secured against your home so
there’s some kind of collateral there but it operates like a credit card you
can withdraw money and you can pay it back? [Jamie] Correct. [Jack] So then walk me through the difference between that and a HELOAN. [Jamie] Sure! So a HELOAN – at the end of
the transaction, the loan funds you get this amount of money and then
month over month over month for 20 years, you pay a fixed payment until that is
paid back. [Jack] So it’s kind of a traditional loan. You’re gonna get an
amount of money gonna have a monthly payment that you’re gonna make and you’re gonna pay that back. [Jamie] Correct, yeah. [Jack] So how does ChoiceLine work in regards to all of that? [Jamie] So ChoiceLine is the marketing name that we’ve designated for these two loan products. Really, what
it’s based on is your FICO and your loan-to-value or “LTV.” [Jack] Okay. I remember FICO. We talked about that but loan-to-value. I know I’ve heard that
term before but let’s break it down here. [Jamie] Sure. So think of how much you owe on the home as the “loan.” [Jack] Got it. [Jamie] How much the home is worth is
“the value” and the ratio of those two – let’s say that I have 80% loaned out against the value of my home, I would be at 80 LTV or 80 loan-to-value. [Jack] So that’s your loan-to-value. [Jamie] Correct. [Jack] Okay, so it’s a ratio right basically of how much you owe versus the value of the home. Okay, that makes sense.
So with these ChoiceLine products then is it variable? Is it fixed-rate? How does that work? [Jamie] Great question! Really what it comes down to is what the member wants, you know. If it’s a
short-term product in terms of duration maybe it’s a quick backyard DIY project… [Jack] Yeah, that would be a good reason to do something like that! [Jamie] And I want to take something that ‘s short-term, I’ve got a bonus coming up… Maybe I think I can get that loan paid off very quickly, that might be a reason why I would elect to
take a HELOC instead of a HELOAN and and let’s say that I’d also like to have
future access to that money. [Jack] Oh, okay. That makes sense. So it kind of sounds like some of the choices that you’re gonna make, in regards to a HELOC
or HELOAN, kind of have to do with where you’re at income-wise, as well,
right? Kind of where you’re at in your income, kind of over
your life. Am I right on that? [Jamie] Yeah, absolutely! You know, I think there are a couple of
different cycles of your life that really kind of dovetail into banking – one
being the credit cycle, which I know that you talked with Carli
recently about (see Episode 4) and we got through that, the second being, you know, as you
get to maybe your late 30s and early 40s, you’re in what they call your “peak
income earning years” so you may have less of a risk appetite depending on
where you’re at in that stage of life that would then dictate, okay, I’d like a
fixed loan product here or maybe I’m okay with a variable loan product here. [Jack] So it kind of sounds like a line of credit might be better for you in those kind of “peak earning years.” Does that mean that younger people
should look specifically at HELOC’s versus HELOAN’s? [Jamie] No, I wouldn’t say that there’s any one way that we’d want to broad-brush anybody into the loan
product. You know, again, it’s called the ChoiceLine so that it’s really a choice and if let’s say you’re not traditional for your age demographic, you
don’t like risk, but maybe others in your peer group do, well we’d like to make
sure that this loan product fits for you and not for what everybody else is doing. [Jack] Well and that’s kind of a recurring theme I feel like that we find
with Bellco, is that we don’t like putting people in boxes. It’s really about the individual and what their needs are gonna be. So we talked a little bit about DIY kind of projects and we talked about maybe
using it for an emergency, are there any sort of limits on what I can use this money… Are there rules? Do I have to walk into a
Bellco and tell them what I’m gonna spend this cash on? [Jamie] No, I mean, again, that’s the other idea with ChoiceLine, it’s up to you. You know, generally, we’ll
have a conversation about what we see as some of the best reasons to utilize a
ChoiceLine. You know, generally, we see people who do kitchen and bath remodels. That’s maybe a better use of it than.. [Jack] A water slide? [Jamie] A water slide or, you know, a new
fancy sports car, you know? [Jack] Yeah, alright, but I mean a water slide that could increase the value of my home. [Jamie] If you find the right water-slider, it could! [Jack] That’s true! You got to sell it to a waterslide enthusiast after
that. We’re kind of joking around. We’re in the weeds a little bit here. So if I wanted to and take advantage of one of these
ChoiceLine products, what kind of costs, what kind of fees would I be looking at? [Jamie] Really, the major one is gonna be opportunity cost. [Jack] What is that? Opportunity cost? [Jamie] So what I mean by that is if you elect to take a $5,000 draw at
closing on either a HELOC or a HELOAN, there are no closing costs, so what I
mean by opportunity cost is it’s really what you associate your time value of
coming into a branch and getting some education and seeing if this is the right
product for you. [Jack] So it’s more of an energy investment than a financial
investment? [Jamie] Correct, yeah. [Jack] That sounds great! Can anybody just walk into a Bellco and ask about this stuff? Do you have to be a member? [Jamie] Yeah, I mean one of the big things and one of the reasons why we’re here, Jack,
is to educate and engage and certainly we love to do that for our membership
but we know that there’s a lot of folks out there who, maybe, haven’t experienced Bellco yet, who, you know, might want to come in and take a look. We’d certainly
welcome that! Hopefully, folks will see the difference between what Bellco offers
and, maybe, some past banking experiences and we could win their business. [Jack] Well I think that that’s so important and such a great
thing that Bellco does is that you can just go in and ask questions because I
think a lot of people, probably a lot of people that tune in to this show do so
because they have questions and they’re just not even sure where to start, you
know? Who do you ask? So I think it’s great that Bellco offers that and it’s pretty easy to become a Bellco member? [Jamie] Absolutely! It takes about 20
minutes. You go through a quick series of paperwork in order to do it. You become a
member with a $25 deposit and then you have full access to all of the
membership things that Bellco can offer, not only that, but you also become part
of a shared banking network with over 9,800 ATMs across the country. [Jack] That’s right and we talked about that I last time you were on. Well,
you heard it here first, folks. Stop into a Bellco! They can answer your questions.
They can help you out. I feel like I learned a lot today! Any final points that you want to add on HELOC’s or HELOAN’s? [Jamie] I think that they can be a great product for anybody for the right reasons. Again, what I would
say is it comes down to education and engagement. We want to take some of the stigma away from financial literacy and some of the more complex discussions that come with it, so we welcome that opportunity to have a
conversation. Hopefully along the way, folks end up coming to Bellco, but if
not, we’re doing our part. [Jack] Well, absolutely! That’s why we had you on the show is to educate people and speaking of which, thank you very much for coming
on the show! [Jamie] Thanks, Jack! I appreciate it! [Jack] Alright! Tune in next time, folks, when we are going to be talking about credit cards. They can create debt but can they
also be helpful? Tune in next month! We ‘ll find out!

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