Home Equity Loans & Lines

Your primary mortgage is the amount you borrowed when you first purchased your home. Over time, as you pay down the loan and/or the value of your residence increases, so does your equity. You can take a home equity loan out against the equity you have built up in your home, essentially borrowing against your home’s value minus what you still owe on your mortgage. It’s important to note that a home equity loan is a second loan against your home. You’ll still need to pay your primary mortgage along with new payments for your home equity loan.

A lender will typically want you to have at least an 80 percent loan-to-value (LTV) ratio once your home equity loan has been approved.

Home equity loans typically have a fixed interest rate, making budgeting for the payments easy. The lender provides a lump sum payment to the borrower, which is then repaid over the life of the loan, along with a set interest rate. Both the monthly payment and interest rate will remain the same over the entire loan term, which can last anywhere from 5 to 30 years. If the borrower sells the home before the loan term is matured, the loan must then be repaid in full.

A home equity loan can be a great choice for a borrower with a one-time or straightforward cash need such as a home addition, large medical expenses, debt consolidation, or a wedding.

As with mortgage loans, there are closing costs associated with home equity loans. Closing costs refer to any fees incurred when originating, writing, closing, or recording a loan. These fees include application, appraisal, title search, attorney fees, and points. Some lenders may advertise no-fee home equity loans which require no cash at closing, but these will usually have other associated costs or a higher interest rate which can easily offset any gains.

There are several advantages to taking out a home equity loan to fund a home improvement project or a large expense:

• The amount of interest paid toward a home equity loan may be tax-deductible.
• Interest rates on HELs are generally lower than those provided by credit cards or unsecured loans.

Home equity loans do have some disadvantages as well:

• Using your home as collateral for the loan means risking foreclosure and the loss of your home if you default on the loan.
• If your home value declines over the term of the loan, you may end up owing more than your home is worth.
• You’ll need to pay closing costs and other fees when you take out a home equity loan.
• You may qualify to borrow more than you actually need and ultimately end up using more than planned, which of course you’ll need to repay.

The hot real estate market has led to a boom in popularity for home equity loans. However, it’s important to weigh all factors carefully before determining if a home equity loan is best for your specific needs.

A HELOC is a revolving line of credit with a variable interest rate. Your interest rate is based on Prime rate and your credit score with payments based upon loan balance, interest rate and a 15 year term.  It also features a 10 year draw period.  The Home Equity Loan is a fixed-rate loan that has only one draw at the time of settlement.  Terms range from 5, 7, 10,15 and 20 years and rate are determined by term and credit score.  With multiple applicants, we use the higher of the scores so you’ll receive the best rate available.