You may be able to sell your home for a substantial profit, especially if you’ve accumulated a large amount of equity. However, that equity remains out of reach unless you access it with a financial product such as a home equity loan or home equity line of credit (HELOC). Figure also offers a type of HELOC known as the Figure Home Equity Line. This article explains the differences and similarities between these three financial products.
Figure Home Equity Line
The Figure Home Equity Line is an open-end loan, meaning borrowers have a revolving line of credit. However, they receive the entire loan amount less the origination fee at the time of origination. The interest rate on the initial amount is fixed at origination, although it can change for additional draws that the borrower makes during a period of time known as the draw period. The interest rate for subsequent draws is fixed for each draw based on the prime lending rate published in the issue of the Wall Street Journal for the month before the draw. A fixed margin is added to this value to determine the total interest rate for that draw.
Figure Home Equity Line vs a traditional HELOC
The lender of a traditional HELOC specifies the maximum amount that it will lend to the borrower and the period, or term, in which the borrower agrees to repay the loan. Traditional HELOCs are often used for one-time expenses like home improvements, medical bills, and education funds. However, Figure's Home Equity Line, a type of HELOC, may be a better fit if you need cash for recurring expenses like monthly bills.
A Figure Home Equity Loan offers the following benefits:
A Figure Home Equity Line, credit cards, and personal loans offer same-day approval in most cases, which traditional HELOCs don’t.
A Figure Home Equity Line and credit cards can provide funding in as little as five days 2, which is unavailable with traditional HELOCs.
The borrower on a traditional HELOC determines the amount borrowed and the repayment schedule within the limits imposed by the lender, like a credit card account. In the case of a Figure Home Equity Line, the borrower has fixed monthly payments like a conventional loan.
A Figure Home Equity Line also has low origination fees. The origination fee on a Figure Home Equity Line ranges from 0 to 4.99 percent, depending on your credit score and the state where your property is located. Figure does not charge any other fees in underwriting or originating the loan. Traditional HELOCs, on the other hand, may have higher origination fees and other fees in addition to the origination fee.
The average annual percentage rate (APR) for a traditional HELOC was 7.33 percent as of June 15, 2019, according to Bankrate. Traditional HELOCs usually have variable interest that can change over the course of the draw period, whereas the interest rate on a Figure Home Equity Line is always fixed on a single draw. If the interest rate on a traditional HELOC is variable, it’s typically based on a standard index, like the prime lending rate. The difference between the prime rate and the interest rate is known as its margin. The interest rate that lenders charge for a traditional HELOC can vary significantly between lenders since they use different methods to calculate their margin.
The APR for a Figure Home Equity Line starts at 4.99 percent1 for the most highly-qualified applicants who use their primary residence as collateral. Your actual rate for a Figure Home Equity Line depends on many factors such as your credit score, combined loan to value (CLTV) ratio, loan term and occupancy status. For example, a borrower with a credit score of 800 and a CLTV of 45 percent would get an APR of 4.99 percent on a Figure Home Equity Line with a term of five years and an initial draw amount of $50,000.
Figure Home Equity Line vs a home equity loan
A home equity loan provides the borrower with the entire loan amount up front, as does a Figure Home Equity Line. A Figure Home Equity Line also offers a line of credit up to the specified amount. The total amount you must repay is the sum of the amount drawn and the accumulated interest, as well as the origination fee, if any. Home equity loans and a Figure Home Equity Line both have fixed interest rates, although the rates on subsequent draws on the Figure Home Equity Line are subject to variation at the time of the draw. The differences between a Figure Home Equity Line and traditional home equity loan include the following:
Unlike a Figure Home Equity Line, a home equity loan is a closed-end loan, so the borrower can’t change terms such as the number and amount of the payments after originating the loan.
A home equity loan often involves a number of fees, unlike a Figure Home Equity Line that only has an origination fee 7. Additional fees for home equity loans include fees for conveyors, surveyors, and valuation, although some lenders may waive them. The borrower can also reduce these costs by hiring a licensed surveyor to inspect the property. In some cases, a home equity loan requires a charge to renew the title information on your property.
All of these forms of equity-based financing use your home as collateral, so they generally have lower interest rates than unsecured loans such as personal loans and credit cards. In addition, home equity lines of credits and home equity loans may offer substantial tax benefits: The IRS reports that the interest on all home equity loans was deductible on personal income taxes in the United States until January 1, 2018, when the Tax Cuts and Jobs Act of 2017 went into effect. Interest payments are still deductible if the loan is used to improve the value of the property.