A home equity line of credit (HELOC) is defined by Wikipedia as “a loan in which the lender agrees to lend a maximum amount within an agreed period (called a term), where the collateral is the borrower’s equity in his/her house (akin to a second mortgage).” Since the mid-1980’s, home equity line of credit became very popular in the early 2000’s both for their reasonable rates and flexibility as a borrowing mechanism.
In 2008, the year of the financial crisis, many major home equity lenders--including Bank of America, Countrywide Financial, Citigroup, JPMorgan Chase, National City Mortgage, Washington Mutual, and Wells Fargo among others--ceased originating new HELOCs and froze, suspended or reduced many existing loans. Some of those banks did not survive the crisis, and the HELOC industry underwent a huge contraction during that period.
HELOCs and Co-ops vs. Condos
Now HELOC financing is again available. “We’ve recently brought this product back to the market,” says Brittney Baldwin, vice president and loan officer at the National Cooperative Bank. Known in the industry as NCB, this bank specializes in co-op lending at all levels, providing underlying permanent mortgages for co-op buildings, individual co-op first mortgages, and equity lines of credit such as HELOCs. “It was out for six or seven years, due to the economic downturn,” explains Baldwin.
While the HELOC is available again pretty much throughout the banking community for single-family homes and condominiums, it is much less available for co-ops. “Across the country we see that a lot of people just aren’t comfortable with co-ops. They aren’t familiar with them. At NCB that is just what we specialize in,” says Baldwin.
What Are the Terms?
NCB offers a HELOC with an interest rate based on the prime rate for a 30-year term. There is an initial 10-year draw period with interest-only payments, and then a 20-year payback period with both principal and interest payments. “The loan-to-value depends on the situation,” says Baldwin. “If the unit is free and clear, we will consider up to 80% of value. With a first mortgage in place, we will only lend up to 70% combined loan-to-value.” A credit score of 700 or higher is required.
Who Offers It?
Other institutions that make these loans include JPMorgan Chase, Citibank and TD Bank. Wells Fargo and Capital One will make a HELOC on a condominium in New York but not on a co-op. Chase offers a fixed rate product with a rate between 4.5% and 9% depending on credit, cash-out and loan position. Their loan also carries an initial 10-year interest-only draw period, followed by a 20-year amortizing period.
Citibank’s product is a variable rate loan with a cap at 18%.; they charge an annual fee of $50.00. TD Bank’s product and its terms lay somewhere between JPMorgan Chase and Citibank, and starts at a variable rate of 4.25%. They lend in New York City and Washington, D.C. Citibank and JPMorgan Chase will provide co-op HELOC financing in New York, New Jersey, Illinois, Maryland and Washington D.C. National Cooperative Bank, which has offices in New York, California, Ohio, Washington D.C., and Alaska, lend in areas where co-op ownership is popular.
The terms may have changed in the years since the inception of equity financing, so it's best to contact the aforementioned financial institutions for more information. The Consumer Financial Protection Bureau has a webpage on HELOCs here.
A.J. Sidransky is a novelist and a staff writer for The Cooperator and other publications.