Piggyback delayed HELOCs provide a creative way to manage debt, access credit, and build equity in a home without increasing the primary loan balance. The process begins with a homeowner taking out a home equity line of credit (HELOC) which is then placed in a second-lien position behind the primary mortgage.
Essentially, a piggyback delayed HELOC allows a homeowner to use the equity they have built in their home to obtain a loan without having to increase the principal owed on their primary loan. This type of loan is often ideal for those looking to make improvements to their home, pay for home renovations, make large purchases, or simply manage their debt.
A piggyback delayed HELOC offers several advantages over other types of financing, including:
1. Lower interest rates:
HELOCs come with lower interest rates than most other types of financing. As a result, borrowers can save substantial amounts of money over the life of the loan.
2. Flexible repayment options:
Unlike other forms of financing, the repayment options of a piggyback delayed HELOC are more flexible. Borrowers can choose from different terms and payment plans to best fit their budget and repayment preferences.
3. Tax deductibility benefit:
Interest paid on a piggyback delayed HELOC may be tax deductible. As a result, borrowers may be able to take advantage of additional tax savings.
4. Equity buildup:
By taking out a piggyback delayed HELOC, borrowers can take full advantage of their home's equity and use it to finance home improvements and other large expenses. This also helps improve the value of the property.
Piggyback delayed HELOCs provide homeowners with the flexibility and convenience of financing large purchases or making home improvements without significantly increasing their mortgage balance. However, it is important to consider both the risks and benefits before proceeding with this type of financing.
Analysis
Piggyback delayed HELOCs is a unique form of financing offered by Mortgage Depot, whereby homeowners can use home equity to fund large purchases and/or renovations without increasing their principal loan balance. This type of loan provides many advantages over traditional forms of financing, such as lower interest rates, more flexible repayment options, and tax deductibility, as well as the potential for equity buildup.
Though this type of loan may seem attractive, it is important to consider the risks associated with it. For starters, many lenders will only approve applicants with high credit scores, high income levels, and/or sufficient collateral, as these loans tend to be more risky. Additionally, if the borrower fails to make payments on time, they could find themselves in a difficult financial situation due to the second-lien position of the loan.
That said, for borrowers with good credit and sufficient income, this type of loan provides an excellent opportunity to finance large projects or renovations without having to increase their primary loan balance. Moreover, since piggyback delayed HELOCs often come with lower interest rates than other forms of financing and the possibility of tax deductions, they can potentially save borrowers money over the life of the loan.
This article was contributed on Dec 12, 2023
