If you have a mortgage, you already know a thing or two about home ownership. If you’re the typical home owner, there’s never a shortage of what can be done to upgrade, fix, or change something about your home. Costs can seem daunting, but that’s where the equity in your home can help.
Making the Equity in Your Home Work for You
Both a home equity loan and a home equity line of credit, or HELOC, use your home as collateral for a loan. Both let you use a percentage of your equity--the difference between the amount you owe on your existing mortgage and the value of your home—to your benefit.
Here’s what they can do for you and how they differ:
Home Equity Loan
Home equity loans are ideal for major projects like a new roof or consolidating debt. They’re fixed rate loans, distributed in a lump sum, and depending on the agreement with your financial institution, you can take up to 30 years to repay them. You could pay closing costs, just as you would with a first mortgage, but usually in smaller sums. A home equity loan is a good alternative to overall refinancing, which, unless you’ll save a bundle on interest over the years of your loan, can be more time consuming and expensive.
Home Equity Line of Credit (HELOC)
A home equity line of credit lets you borrow and pay as you go, essentially using your home to pay for renovations, upgraded appliances, or emergency repairs. You can also use a HELOC to finance a college education, cover medical expenses, or replace your old deck.
HELOC loans have variable interest rates based on rates set by the Federal Reserve Board, which are then posted in The Wall Street Journal. Most HELOCs have a draw period and a repayment period, which gives you the flexibility to go at your own pace, or as needed.
For example, a 15-15 gives you 15 years to borrow against your HELOC. During this time, you make payments only on the amount you borrowed and the interest you’ve accrued. As you pay back principal, you increase the amount you can borrow again, up to your approved credit limit. During the second 15 years, the draw period is over and whatever balance you have on your HELOC goes into repayment over that 15-year term.
Functioning similarly to a credit card, there’s a limit to what you can spend, based on the equity you have available, but when you spend it and how you spend it are up to you.
Already have a HELOC and still have funds available? Just log in to Online Banking and transfer your line into a checking account, make purchases with your Equity Visa, or stop by any branch.
Ready? Talk With a Loan Officer
If your home is worth more than when you bought it, and a loan doesn’t significantly increase your overhead, it may be time for a loan to consolidate your bills or finish that renovation project you’ve put off. If you’re unsure, talk with your credit union loan officer. They can help you review your options, assess your potential costs, and determine how much equity you have. Ultimately, choosing to reinvest in your home—or yourself—should add value.