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If you've never had a home equity loan, it can be confusing. Here are a few home equity basics to help you. If you would like further explanation on any aspect of home equity loans, talk to a friendly and knowledgeable Account Executives. They're here to answer your questions.
Home Equity loans or lines of credit are also referred to as second mortgages. They work like traditional home loans and are secured by your home. Home equity loans and lines of credit generally have interest rates lower than most credit cards.
The difference between a home equity loan and a home equity line of credit is that with a home equity loan you get all of the money at once and the loan usually has a fixed interest rate. A line of credit has an initial time frame where you can reuse the money as often as you like, up to your approved credit line amount (the draw period) followed by a period where you pay off the entire balance without the ability to withdraw any additional funds (the repayment period).
Equity refers to the portion of a home's value that the homeowner owns outright. If your home is worth $150,000, and the amount due on your current mortgage is only $50,000, the equity that you have in your home is $100,000.
There are tax benefits to both home equity loans and lines of credit. In many instances, the interest on a home equity loan of up to $100,000 can be fully tax-deductible up to 100% of your home's value. Consult your tax advisor.
People frequently choose home equity loans to consolidate high-rate debt, such as credit cards, or to finance large expenses, like college, remodeling or home repair. The loan provides a lump sum of money at a fixed interest rate with a fixed repayment period and the same monthly payments for the life of the loan.
A home equity line of credit sets a credit limit and allows the homeowner to withdraw and reuse money as needed. This is most often done with a check book. There is often a minimum initial withdrawal requirement. You only pay interest on the amount that you have withdrawn and not yet repaid. A home equity line of credit usually has a variable interest rate, and a fixed period of time where you can borrow and repay as often as you like followed by a specific time period during which you pay off the loan.
A 125% home equity loan is also referred to as a no equity loan. This is a way for homeowners with little or no equity and good credit to borrow up to 25% more than the home's value. There are also 125% lines of credit that work just like the home equity line of credit described above. Tax deductible interest may be limited on loans over your home's value.
A cash-out first mortgage is a loan where you can take out cash that is in excess of the amount that you owe on your current first mortgage. The new loan is used to pay off your old mortgage plus you can take out additional cash. This mortgage usually has a lower interest rate than a typical home equity loan.
You may have the option to obtain a lower interest rate by paying discount points. One point represents one percent of the loan amount.
To see if a home equity loan or line of credit is right for you, and which products and options are available in your state, complete Home Equity short online form. An Account Executive will contact you within one business day to discuss how much you could save in the coming months. There's no obligation.