Simply put, a home equity loan is a type of second mortgage that a homeowner can take out on their house. Most homeowners choose to take out an initial or first mortgage when they first purchase their property. The difference between what the homeowner owes on their first mortgage and the actual value of their home is called “equity.” Equity is the estimated amount you would have if you sold the home and paid off your mortgage. A home equity loan allows homeowners to borrow against that remaining home value, opening up more funds to you.
A home equity loan is a fixed rate loan secured by using your home as collateral. Equity is determined by taking the appraised value (or tax valuation) of your home, then subtracting the balance of your first mortgage. A home equity loan can be issued for a portion of that remaining equity. Our credit union will not place a third lien on any property, so if you currently have a second mortgage, we would need to arrange to pay off the second mortgage as part of your home equity loan. We’d be happy to discuss your options with you and determine the best solution for your needs.
A home equity can be easier to qualify for than other types of loans because the loan is secured by your home. As a result, it can also make significant funds available to you at a lower interest rate than most personal loans. You can use your home equity for a variety of uses, depending on your needs, but it’s best to use it in ways that create financial growth for you. It’s great for doing home renovations or investments that promise to create value and improve your financial outlook. This helps the loan work to your long-term benefit, making it more likely you’ll be able to pay it off as well.
You’ve probably heard of HELOCs — which stands for “home equity line of credit.” And though it sounds similar, a home equity line of credit is different from a home equity loan in several important ways
Use your home equity loan for purposes that grow your overall financial situation. The most popular, value-creating uses of a home equity include:
Because your home is the collateral, a home equity loan is best used for items that either retain their value or grow in value over time. It’s best to avoid this type of loan for things that decrease in value:
When it comes to loans, credit unions like ours offer some of the most affordable interest rates around. And there’s a good reason we can do so — one that’s to your advantage. You see, unlike banks and lenders that are driven by bringing in a profit to pay to executives and stockholders, credit unions are not-for-profit lenders. Any profits we make get put right back into our members. Instead of overwhelming you with high interest payments, we offer manageable rates that make it easier for you to make your payments, lessening the impact of debt on your life and helping you maintain a firm financial footing.
Home equity loans are particularly useful loans to use when they’re appropriate for your situation, because they result in fixed (based on your current credit score), manageable monthly payments. Instead of leaving you wondering what to expect, we can tell you from the very start of your loan how much you’ll pay each month against the loan debt, and how much your interest portion of the payment will be. And we offer loan terms designed to fit your budget. That way, you can plan your finances every month, without the stress of wondering when and how much your interest rates will change.
Your payments and your interest rate will be determined based on the actual amount of your home equity loan. So, when you come in to discuss your loan, we’ll talk with you about the options available to you. We’ll work with you to find a loan amount, interest rate, and fixed payment schedule that makes the most sense based on the equity you have in your home, your personal budget, and any other concerns you have.
* Exact rate depends on credit history. Contact CU for details