Mortgage, home equity combo loans debut

A new breed of home loan combines a first mortgage with a line of credit backed by equity in the home. The borrower can tap the home equity line of credit like a credit card account.

Wells Fargo Home Mortgage introduced the Home Asset Management Account a couple of months ago. Other lenders say they plan to follow Wells Fargo's lead and offer similar loans. And no wonder: The Home Asset Management Account is one of those products, like Hula Hoops and cup holders in cars, that make observers slap their foreheads and exclaim, "Why didn't I think of that?"

Here's an example of how the loan works: You buy a $200,000 house and make a down payment of $40,000. When you close on the loan, you not only get a $160,000 mortgage, but also a line of credit for all or part of the equity -- say $35,000.

Millions of homeowners have a mortgage and a home equity line of credit, also called a HELOC. But those homeowners applied separately for HELOCs after they got mortgages. The Home Asset Management Account combines those two steps into one. Homeowners can choose to decline the HELOC when they get a mortgage. The account has a $75 annual fee, with the first year's fee waived.

Borrowers get access to their home equity either by writing checks on the account or by using an access card that looks like a credit card, explains Dennis Culver, national sales manager for Wells Fargo Home Mortgage.

Borrowers get monthly statements of their account activity and available balances. Wells Fargo adjusts the available balance quarterly and annually: every three months as the mortgage is paid down and equity increases, and once a year to reflect estimated changes to the home's value.

With the home being one of the biggest financial assets that people have, "we want to make it easier for them to perpetually be able to access that when the value goes up," Culver says.

He adds proudly: "The only place that you can get this type of product is Wells Fargo."

That won't be the case for long.

Some of Wells's competitors say they will replicate the combined mortgage and HELOC.

Consumers can use the HELOC portion of the loan to buy things or pay off higher-rate credit card debt. Culver foresees people using their HELOC in place of auto loans (especially after carmakers stop offering so many zero-percent loans) or to buy furniture or pay for home improvements. Those are typical uses for HELOCs.

With the Wells product, a portion of the line of credit can be converted to a fixed rate at a set term. For example, a homeowner could pay for a car with a check connected to the equity line, then convert that amount to a four-year loan at the prevailing interest rate.

Rates vary depending on the borrower's credit history and overall interest rates. Generally, rates on the HELOC are a little lower than rates on 30-year mortgages, Culver says.

He believes that the combined mortgage and HELOC will find popularity among people who invested in stocks for expenses, such as their children's college education. Such people might not want to sell their stocks now at a loss. They could pay for college by borrowing against home equity, wait for stock prices to appreciate, then sell the stocks to pay off the debt. It's not Personal Finance 101, but it's not differential calculus, either.