Home Equity Loans

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What Is a Home Equity Loan?

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.

How Does It Work?

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. 

Why Choose a Home Equity Loan?

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.

Comparing Home Equity Loan to a HELOC to a cash-out refinance

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

  • A loan is a lump sum given to you at once, and then paid back over time in fixed payments.
  • A line of credit is a credit limit you can borrow against. In that sense, it’s like a credit card. You can tap into the line of credit for several things, until you’ve reached the borrowing limit or the end of the “draw period.”

Home equity loan


  • Qualifies for a tax deduction if used to buy, build, or substantially improve your home
  • Interest rate is lower than on a personal loan
  • Makes more funds available than a personal loan
  • Has a fixed interest rate and fixed payments


  • If you fail to make payments, you can lose your home
  • Must be paid off in full when you sell your home
  • Involves closing costs, just as when you bought your home

Home equity line of credit (HeLOC)


  • You choose how much and when you draw on the line of credit
  • Can borrow small amounts several times
  • Can make smaller payments early in the life of the HELOC
  • Only pay interest on the amount you actually borrow


  • Lender can freeze your line of credit if they think you can’t pay the loan back
  • Once the draw period ends, you pay larger, amortized payments, which can be hard on your budget

Cash-out Refinances


  • You won’t have a second lien
  • You could have a lower interest rate on your new loan
  • You may be able to get a mortgage interest deduction on your taxes


  • You have to go through a closing that will require upfront costs
  • Your original mortgage is replaced by a new mortgage that may have different terms
  • All refinances are considered long-term loans and therefore more interest may be paid over the life of the loan

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How to use it.

What You Can Do with a Home Equity Loan:

Use your home equity loan for purposes that grow your overall financial situation. The most popular, value-creating uses of a home equity include:

  • Home Improvements that Add Value - Kitchen remodel, bathroom remodel, new windows, new roof, room addition, and other renovations create a return on investment that improves your home’s value.
  • High Interest Debt Consolidation - Use your home equity loan to pay off high-interest loans and credit cards, and end up with one fixed monthly payment that you can manage.
  • Carefully Funding Investment Properties - An affordable second home, a condo for rental, or a foreclosure property you can flip are among the great uses for a home equity loan.
  • Emergency Expenses - Major medical bills, natural disasters and other unexpected situations can result in expenses that may make sense to pay off with a home equity loan. 

What You Shouldn’t Do with a Home Equity Loan

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:

  • Purchasing a Vehicle - Cars, trucks, and boats all begin to depreciate, losing value the moment you take them off the lot.
  • Vacations - Trips are fun, but they don’t create financial growth, which means you don’t want to use your home as collateral.
  • Luxury Items - Boats, cars, and similar purchases are better secured with a different form of loan than a home equity loan.
  • Borrow More Than 80% of Your Home's Value - Ideally, the best way to keep your home is not to borrow on its entire worth. A good rule of thumb is to limit your mortgage and your home equity loan to a total of 80% at most of your home’s value.


Rates Are Great at a Credit Union

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.

We offer Fixed Rates

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.

Based on Loan Amount

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.

Home Equity Loan Rates

Terms Vary Based On Balance Due
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* Exact rate depends on credit history. Contact CU for details

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