How does a Home Equity Line of Credit Work—and how can it help?

Say you’re exploring ways to pay for a home renovation, cover an unexpected expense or streamline your finances. As you’re deliberating, keep in mind that a home equity line of credit (HELOC) could be a potential source of funding. A HELOC is a revolving line of credit based on your home’s equity—the difference between the home’s appraised value and the balance of your mortgage. With a HELOC, you can use your line of credit as needed throughout a borrowing or draw period, which is typically 10 years. During that time, you must make minimum monthly payments that typically include principal and interest. At the end of the draw period, you’ll have a set amount of time—usually 20 years—to pay off any remaining balance.HELOCs come with both benefits and risks. They can provide you with funds at a lower interest rate than other kinds of loans, like credit cards and personal unsecured loans, and obtaining one can be quicker than going through a traditional loan process. On the other hand, you’re using your home as collateral. If you default on payments, the lender could foreclose on your home.

With these pros and cons in mind, here are five instances where a HELOC could make sense:

1.) Upgrading your home

Making additions, repairs and renovations may help you keep pace as your housing needs evolve. Some home improvements—such as an increase in livable square footage, the renovation of an outdated kitchen or a new roof—could also increase the property's value.

2.) Borrowing at a lower interest rate

If you have substantial equity in your home, HELOCs may offer a lower interest rate than other types of credit, such as credit cards, car loans, personal loans, and private student loans. Additionally, banks often offer introductory rates and discounts on home equity lines of credit.

Interest rates on HELOCs may vary from month to month based on an underlying index. Some banks offer a fixed-rate option for some or all of your balance. On one hand, the fixed rate is often higher than the variable rate, but the benefit is that your monthly payments won’t change, making it easier to incorporate the debt into your budget.

3.) Consolidating debt

If your HELOC’s interest rate is lower than rates on your other loans, including any credit card balances, you might consider simplifying your payments and reducing your interest costs through debt consolidation—paying off higher-interest-rate debt with a new lower-interest-rate loan. Just be careful not to run up new debt, such as on newly paid-off credit cards.

4.) Paying for higher education

You can borrow money through your HELOC to make college tuition payments. Before making this choice, it's important to compare HELOC and student loan interest rates and repayment options. While lower interest rates are usually preferable, it's a good idea to talk to a financial advisor about the best option for your situation.

5.) Covering unexpected expenses

A home equity line of credit can help when you’re hit with unexpected expenses such as medical bills, recovery from a natural disaster, or a similar sudden cost. Ideally, you’ll have an emergency fund that you can tap first, but if you don’t, or it’s not enough, a HELOC can offer you access to needed cash.

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3 Ways to Lower Closing Costs

If you’re concerned about closing costs adding up, there are steps you can take to help ease some of the burden. In addition to shopping around for insurance or negotiating attorney fees, keep these strategies in mind:

		Compare lenders. By getting mortgage approvals and loan estimates from more than one lender, you can compare different lender’s fees. You can use this information to ask questions of potential lenders—and try to negotiate things like closing or escrow agent fees and loan origination fees.
		Ask the seller to contribute. Depending on where you want to live and other factors surrounding your purchase, you may be able to get the sellers to pay for some of your closing costs.
		Explore rebates or incentives. Some banks may offer rebates for eligible borrowers or first-time homebuyers. It’s worth asking about these possibilities when you’re shopping around for a mortgage lender. Source NMLS ID 394275 | DRE ID 01769353 Contact us today for help! Phone: 916-847-3090 / Email: margeate@workhomeloans.com

How Credit Scores affect your Mortgage Rate

How Mortgage Lenders Use Credit Scores

Credit scores generally range from 300 (the lowest) to 850 (the highest). This number can make a big difference in determining whether you qualify for a mortgage and the terms you are offered.

A higher score increases a lender’s confidence that you will make payments on time and may help you qualify for lower mortgage interest rates and fees. Additionally, some lenders may reduce their down payment requirements if you have a high credit score.

What Credit Score do you need to get the Best Mortgage Rate?

• A high score-- A score of 670 or higher is considered good. Lenders differ, but they generally want to see a score of at least 620 before offering most home loans. Mortgage lenders also consider things like your credit report, level of debt and income.
• A low score-- If your score is below 620, you may still be able to qualify for a loan backed by the Federal Housing Administration. FHA loans tend to have higher interest rates and fees.

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NMLS ID 394275 | DRE ID 01769353

What to Do When Your Adjustable-Rate Loan Resets

Homeowners who opted for an adjustable-rate mortgage (ARM) when interest rates were near historical lows may now be confronting the possibility of their loans resetting at a much higher rate. 

A key attraction of an ARM is that they generally come with a fixed interest rate for a specified initial term—five years, say—after which the interest rate may reset in line with prevailing interest rates (based on the terms of the loan). Generally, the initial fixed rate is lower than what you'd pay for a fixed-rate mortgage, making ARMs an appealing option for homebuyers who expect rates to fall in the future or maybe expect to sell their homes before rates reset. Of course, if rates go the other way—as they have after plumbing historical lows just four years ago before bouncing sharply higher—then a rate reset prove painful, leading to a potentially sharp jump in your mortgage-financing costs. 

So, what can you do in such situations? Here are some possibilities...

Understand the loan terms

First, familiarize yourself with the mechanics of your loan. After the initial fixed-rate period ends, your rate will adjust at set intervals, typically every six or 12 months. This new rate generally is calculated using two numbers: an adjustable market-based interest rate, often the Secured Overnight Financing Rate (SOFR), plus a fixed margin that was set when the loan was established. For example, a 3% SOFR plus a 2.5% margin results in an adjustable rate of 5.5%.

However, most ARMs have a series of interest-rate caps to protect you from exorbitant rate increases:

• An initial cap, which limits how much your payment can go up when your initial fixed-rate period ends.
• A periodic cap, which limits the size of the rate increase at each adjustment.
• A lifetime cap, which establishes a maximum interest rate for the life of the loan.

Understanding how these caps work is essential because they define the worst-case scenario for your borrowing costs once your ARM resets. 

Weigh your options

Once armed with your loan information, you can properly evaluate your options. Here are five approaches to consider: 

1. Do nothing: It's possible, given the current mortgage-rate environment, that an ARM secured a few years ago with attractive terms might still be your best option even after the initial fixed rate ends. Sometimes a good cap structure can save you.
2. Refinance: If you have sufficient equity and a strong financial profile, refinancing into a new loan could make sense. Depending on your goals and current interest rates, you could opt for another ARM or pursue a fixed-rate mortgage. The former will help you secure a smaller initial payment while the latter will offer predictable payments for the life of the loan. However, closing costs are a key consideration when deciding whether to refinance, especially if you pay "points"—a percentage of the loan amount—to secure a lower interest rate. It can often take years to break even on those costs, so work with your financial advisor to compare the financial impact of a refinance against the worst-case cost scenario on your current ARM.
3. Pay down the loan: If you make a lump-sum partial payment to the loan's principal ahead of a rate reset, the bank will re-amortize the loan based on the lower amount outstanding, which can help keep your monthly payment manageable even if your rate adjusts higher. However, when you have ample liquid assets, the question isn't whether you can pay down your loan but whether you should. Generally, if you can earn more in the market than what you're paying in interest, it might make more sense to invest the assets than to pay down your debt.
4. Convert your loan: Some ARMs come with a conversion feature that allows you to switch to a fixed rate when the initial rate period ends. However, you'll need to see how the conversion fees and other costs, plus the resulting fixed rate, compare to just refinancing.
5. Move. As noted above, many homebuyers use an ARM when they don't expect to hold the property for the long term. If a move is still in the cards, the up-front cost of refinancing now might not be worth it.

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What Credit Score do you need for an FHA Loan?

If you’re thinking about buying a home but you’re worried about credit score requirements, an FHA loan might be the right solution for you. Backed by the Federal Housing Administration, FHA loans are designed to help more Americans achieve homeownership thanks to their flexible requirements. While your credit score plays a big role in your loan application, homebuyers with low credit scores—and even those without credit scores entirely—could benefit from an FHA loan.

580 and above: more options, less down payment

If your credit score is 580 or higher, you can qualify for the standard FHA down payment of just 3.5 percent. This is one of the most attractive features of the FHA program.

How your credit score affects your FHA loan;

1. Down payment

As noted, your credit score directly impacts the minimum down payment:

• 540–579: 10% minimum down payment
• 580+: 3.5% down payment

2. Interest rates

While FHA interest rates are generally lower than conventional loans, higher credit scores still help you qualify for better rates and terms.

3. Mortgage Insurance Premium (MIP)

All FHA loans require MIP, no matter how much down payment you provide. This is in contrast to Conventional loans, where paying more than 20 percent down payment exempts you from the Private Mortgage Insurance (PMI) requirement, However, higher credit scores may lead to better loan offers and lower monthly payments overall.

Other key FHA loan criteria

Even if you meet the credit score requirements, lenders also look at:

• Employment history (typically two years)
• Income stability
• Debt-to-income ratio (generally below 43 percent)
• Property appraisal (must meet FHA standards)

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How ‘Zombie Mortgages’ are Coming Back to Haunt Homeowners Years Later

 

They’re called “zombie mortgages” — debts that homeowners thought were forgiven long ago, only to learn that they still exist and could cost them their homes. Economics correspondent Paul Solman and producer Diane Lincoln Estes report on these back-from-the-dead debts, in partnership with the documentary news group Retro Report.

NMLS ID 394275 | DRE ID 01769353

Review Your Insurance Policies

You May Qualify for Lower Rates in 2026

The start of a new year is the perfect time to take a closer look at your insurance coverage. Many homeowners don’t realize that rates, discounts, and underwriting guidelines can change from year to year—and 2026 may offer opportunities to save.

Whether it’s homeowners insurance, auto insurance, rental property coverage, or umbrella protection, a quick review with your insurance agent can help you:

• Identify newly available discounts
• Adjust coverage based on recent property improvements
• Compare carriers for more competitive pricing
• Ensure your coverage still matches your current needs
• Spot gaps that may have developed over time

Even small premium reductions can add up, especially if you’re carrying multiple policies or have investment properties.

A simple call to your insurance company or broker could reveal better rates, updated options, or ways to fine-tune your coverage for 2026.

Starting the year with clarity—and potentially lower expenses—is always a smart move.