Home Equity Loan Types Explained
We all keep lists, either written down or in our heads, of our goals and dreams for the future.
It could be anything from a wedding, college, home improvements, a special vacation or perhaps you need funding for an unexpected expense.
Give yourself a sense of relief and the satisfaction of crossing something off your list! Need cash to do it? Consider tapping into your home's equity. There are two types of Home Equity Loans to consider, so we brought in our lending and sales teams to break down the differences, benefits and more. Compare your Home Equity Freedom Line of Credit (or HELOC) vs. home equity loan options and see how much you could save.
Grab a calculator.
"Home equity" may sound complicated, but it's simple. It is the value of your home minus what you still owe on your mortgage. So, if you have paid $100,000 of your mortgage and your home is worth $200,000, you have $100,000 in equity. Home equity approvals are based on creditworthiness, the ability to repay, and a Loan-to-Value calculation (the math we described earlier).
Is this the right product for you?
Before drilling down into loan differences, it is essential to determine your short- and long-term needs. The answers to these questions can help you determine which loan product best meets your needs. Rate, term and payment considerations can vary, and our team can help you address these individually to ensure the best fit.
Put on your thinking cap.
We recommend asking yourself these four questions to determine if this loan product makes sense.
- What is the purpose of your request?
- Are you a homeowner?
- What needs do you have in the future?
- What payment are you comfortable with?
Do you have your answers written down? Let's continue!
Let’s talk about Home Equity Loans.
A Home Equity Loan is a fixed-rate loan secured by one's primary residence. The fixed rate lets you borrow a lump sum at a specific annual percentage rate for a particular time. Your payments remain consistent throughout the length of your loan.
Our Home Equity Freedom Line of Credit is a little different.
A Home Equity Freedom Line of Credit establishes a flexible credit limit that can be used, repaid and reused, like a credit card limit. Our freedom line of credit allows members to have a variable rate line of credit with the option to lock-in at a fixed rate. Now that's freedom! Remember that a variable-rate loan means your interest rate can change over time and your payments may fluctuate.
Both loan products are beneficial.
Rates for both products are lower due to the use of the real estate as collateral, and higher loan amounts are available based on equity. In addition, longer terms are available, which keeps payments low. Want to know one of the best parts? The application approval process is relatively speedy, averaging 2 1/2 to 3 weeks.
What can you use this product to fund?
Regarding a home equity loan vs line of credit, both loan products offer lower interest rates than many personal loans and credit cards. Thus, they can be a smart way to fund a college education, finance a wedding, or consolidate high-interest debt. An open line of credit can be used for emergencies or future needs, such as education costs. Here are a few examples of what this product can fund:
- Home improvements
- Debt consolidation
- College tuition
- Vehicle purchase
- Emergency fund
- A refinanced mortgage balance from another financial institution
Borrowing against the equity in your home is a big decision. Through our MyConcierge™ service, your own free, personal concierge can help you to navigate the details of spending, saving and planning for the future – including helping you to choose a loan product that is right for you. Talk to your concierge through our mobile app or online banking today.
Thank you to Jenn Farnham, Direct Lending Operations Manager, Jen Hommerbocker, Home Equity Team Leader and Jerry Tetzlaff, Sales and Service Manager for your contributions to this article!