"They could have the best of both worlds"
HELOCs and home equity loans continue to grow in popularity among homeowners across the United States thanks to record home equity. The benefits of these types of loans are also numerous, especially for self-employed borrowers and gig workers, said Thomas Yoon, CEO of Excelerate Capital – a mortgage company that distinguishes itself as an innovator in non-QM.
Yoon joined MPA Talk to discuss the advantages of choosing a home equity loan, or HELOC, over a cash-out refinance loan in this high-rate environment.
“I think it’s unique to that individual borrower and in their circumstance in their life at that time,” Yoon said. “Historically, HELOCs and home equity loans are done in the second lien position. That means someone has a first mortgage, and they want to draw a second loan, a HELOC or home equity line of credit and where they act to use that money to either pay off debt, consolidate debt or do some upgrades in their house.
“[Excelerate] has created a first lien HELOC that has the ability to do the same thing that we just talked about that a home equity loan and the HELOC will do, but it isn’t the first position it gives. There’s more flexibility because it’s deemed a non-QM loan that gives you more opportunities for borrowers to qualify than normally would. Typically, it would go to borrowers such as self-employed borrowers or gig economy borrowers that do not have standard W-2 income.”
However, Yoon advised against taking out a HELOC if you already have a low-interest, fixed first lien mortgage.
“The example would be if you refinanced your loan in 2020-2021, and you have a really good low fixed 30-year rate,” he said. “Would it make sense for you to go into our first lien HELOC? It would be better for you to just get a second lien HELOC. This is an opportunity where they could have the best of both worlds’ potential.”
You can listen to the full MPA Talk podcast episode here: Non-QM in an Evolving Real Estate Market, and share your thoughts with us in the comments below.
