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Hello HELOC!

Following our most recent articles describing how the rent-to-own industry is expanding and how we have been successful for over 8 years, we made the decision to look at financial trends that we can analyze in terms of value to you.

The American dream is full of optimism and aspirations that may differ from person to person, but it is true that it is often associated with home ownership, which not only represents an economic investment but also the legacy we leave behind for our children.

And while this is how many families’ stories end, there are still some in the US for whom paying a mortgage is just the beginning. That’s because many have jumped at the opportunity to participate in a pair of financial moves known as a second mortgage, or a Home Equity Line of Credit (HELOC), which offers the same number of opportunities as risks. And of course, we’ll explain it to you!

Based on this, we made the decision to compare those families that have more resources and do not require our program to buy a property, since their credit score allows them to opt for a traditional mortgage and also a second one (or a HELOC).

And what is it about? In both cases, it is a loan taken on a property that has already been mortgaged as the name implies. The capital that has grown in the residence is used as collateral for this type of loan. Principal is the amount that separates the current market value of the home from the remaining debt on the initial mortgage. For example, if a house is worth $350k and the mortgage still owes $200k, the homeowner has $150k in equity.

Therefore, homeowners can obtain any of these products and borrow money up to a certain proportion of the amount against this principal.

A second mortgage and a HELOC are not the same thing, although the term “second mortgage” is often used as a catch-all word to describe any loan secured by the collateral of property beyond the first mortgage. The main difference is how the funds are distributed and returned.

Traditionally, a second mortgage has been treated as a separate loan from your primary mortgage and requires separate payments. It’s a one-time loan, similar to your first mortgage, that gives you a lump sum of money that you’ll pay back over a predetermined period of time, often at a fixed interest rate.

In the case of a HELOC, we mean a revolving line of credit, much like a credit card works where you can borrow and repay as needed, but with a variable interest rate that fluctuates depending on changes in the market.

So essentially, a HELOC can represent a more flexible loan tied to higher risk such as the possibility of eviction if the change in interest rates exceeds your ability to pay, while a second mortgage can result in a larger sum. in the family’s debt, but fixed at an interest rate that will not change.

In either case, both must be addressed with careful consideration.

 

How many homes in the United States have a second mortgage/HELOC?

Second mortgages and Home Equity Lines of Credit have seen a significant drop in both the number and percentage of foreclosed properties between 2010 and 2021 (latest year available), according to data from the Office of the Census.

In fact, it is quite surprising to see the loss of homes owned by either of these two products since 2010: From 51,696,841 homes with a second mortgage or HELOC in 2010, it has decreased by 3.7%  to 49,759,315 homes with a mortgage or HELOC in 2021.

 

Reasons for the decline in second mortgages and HELOCs

In the wake of the housing crisis, lenders may have tightened their rules for second mortgages and HELOCs, making it harder for homeowners to qualify. This is an important aspect that may be at stake.

And if the requirements for families who can get mortgages and conventional loans become more stringent, we can only speculate how much more difficult it will be for those less fortunate families who aspire to own their own homes.

The reason for this comparison between the families with access to these financial movements and those that we help with our program is that we simplify the home acquisition process through monthly installments that are very comfortable (they usually cost around two thirds of what costs the average rent) and without the need to accumulate debt upon debt, risking the assets that they are trying to obtain with so much effort and dedication.

There may be cases where our families need a loan to make the necessary repairs in their home (remember: they are the ones in charge of covering this part) or because they have time availability, they want to do a large renovation in one go , or because they lack the funds for an emergency repair, where they could request an additional loan from the PhilanthroInvestor (PI) through Equity & Help, and be the latter who determines whether or not to grant it in a more personalized approach compared to the regulations presets from a bank.

This is why our presentations contain a lot of the phrase “Invest as banks do”, since we maintain the same concepts and objectives so that each PI receives stable net returns of 8 to 12% per year, but in a much more responsible way.

This being a stable vehicle for those investors who really understand the philanthropic focus of our vision, thus allowing them to generate compound interest over time to multiply their capital while reinvesting it helping more families.

We can only anticipate an increase in the number of people who can use our approach as the rules get stricter. And that’s our purpose as a company: To be there to help them make the American dream come true.

 

See you next week!

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