Home Equity Guide
Helping you understand everything Home Equity
Home Equity Loans
What is a Home Equity Loan?
A home equity loan also commonly referred to as a second mortgage, is a loan that allows you to borrow from the equity you have invested in your home. As a refresher, your equity is the difference between your home's worth and how much you still owe on your mortgage.
A home equity loan gives you a single lump sum of money you can use however you choose. For example, a home equity loan is perfect to pay off large bills like student loans, consolidate high-interest debts, or finance a big event like a wedding or dream vacation. As an added bonus: You get a low-fixed rate and an affordable monthly payment that will never increase.
How can I use a Home Equity Loan?
Based on your needs and priorities, where you apply the funds from your home equity loan can vary. Below are some examples of how the money from home equity loan may be allocated:
- Home Renovations
Pay of Credit Card Debt
It’s important to note that while there are advantages of using a home equity loan (most notably the low interest rates), homeowners should be cautious, ask smart questions and weigh all options before securing a home equity loan.
What are the benefits of a Home Equity Loan?
For borrowers, the benefits of a home equity loan can be broken into the following categories:
Low Interest Rates: Perhaps one of the best benefits of a home equity loan are the interest rates, which are most often at a fixed rate, meaning that the interest rate will not fluctuate. In addition, "home equity loans usually have lower interest rates than credit cards and other types of unsecured debt, because your home acts as collateral for the loan, meaning lenders take on less risk and are more willing to offer lower interest rates. (S.News)
Large Access to Cash: With a home equity loan, you are able to tap into the money that you already invested in your home - an amount that can range depending on the amount and frequency of your monthly payments. With that said, it's important to remember that "the actual amount of the loan also depends on your income, credit history, and the market value of your home" (Federal Trade Commission).
What is a home equity loan?
Let’s quickly review what exactly is a home equity loan:
A home equity loan gives you a single lump sum of money you can use however you choose.
For example, a home equity loan is the perfect to pay off large bills like student loans, consolidate high-interest debts, or finance a big event like a wedding or dream vacation.
Now with that definition under our belts, let's take a closer look at the benefits of a Home Equity Line of Credit.
How can I use a Home Equity Line of Credit?
Here's just a few of the ways you can use your HELOC
Afford a Home Improvement Project: If you have your heart set on a remodeling your kitchen or dream of a new deck, a home equity line of credit can help make those dreams a reality. A home equity line of credit is especially good for a project where you can’t afford to do everything at once, and instead want to tackle one project at a time (versus a project where you know the exact amount, i.e. a kitchen remodel, in which case a home equity loan may make more sense).
Make a Big Purchases: Since a home equity line of credit essentially functions as a credit card, this means that you are able to use these funds for a big purchase, i.e. vacation, buy a new car, etc. Alternatively, it may be worth exploring other options for large purchases, i.e. a Vacation Loan. For example, American Heritage Credit Union offers vacation loans for members who may have lower income or low credit scores, and simple need a loan of up to $1,200 for any summer to-dos.
Consolidate Debt: Another benefit of a home equity line of credit is that it can be ”used to consolidate debts to a lower interest rate, and homeowners will often use home equity to pay off other personal debts such as a car loan or a credit card” (Bankrate). One word of caution if you go down this route—make sure you work to get the debt down after you use your home equity line of credit, so that you can continue to improve your credit score.
How is a HELOC different than a Home Equity Loan?
In short, a home equity loan provides you with a lump sum of money that you must pay off over a certain amount of time via fixed monthly payments. A home equity line of credit (HELOC) is different in that it operates more similarly to a credit card. A HELOC allows you to get approved for a certain amount, where you can only borrow what you need…and you can borrow multiple times after you get approved. In the early years, you can make smaller payments, but at some point, you have to start making fully amortizing
payments that eliminate the loan.
Where can I get a Home Equity Loan or Home Equity Line of Credit?
As with any big life decision, it’s important that you go with a resource that you trust. That’s why, we are committed to best serving our local community and working with our members to navigate financial decisions, like home equity options, when the time comes.
If you're ready, American Heritage is offering home equity products for all new or existing members!
Want to talk it through?
Even with all the educational materials out there, sometimes you just need to talk to someone. We have you covered! Our Member Advisors are ready to answer any questions you have about your specific situation. Stop by and chat with us!
Why use American Heritage for your Home Equity Needs?
Save More by Paying Less
Low rates mean you can focus more on funding your goals.
Easily Apply Anywhere
Apply online, over the phone, or inside your local branch — whichever works for you.
The Right Time to Refinance
Pay less over time by locking in a great rate that can save you thousands in interest..
2060 Red Lion Rd, Philadelphia, PA 19115
Federally Insured by NCUA.
Annual percentage rates on these products are determined by an evaluation of applicant credit, collateral valuations, length of term and other considerations. Your rate may vary from the rate shown. Rates current as of 06/01/20.
*Annual Percentage Rate (APR) includes a discount of 0.25% for members who choose to make loan payments via payroll deduction or automatic payment from an American Heritage Credit Union account. Rates for this product are determined by an evaluation of applicant credit, loan-to-value (LTV) and other factors. Your rate may vary from the rate shown. Sample Monthly Payment: $28.87 for every $1,000 borrowed at 2.49% APR for 36 months. Your payment may vary. Payments for home equity loans do not include amounts for taxes and insurance premiums and, if applicable, the actual payment obligation will be greater. Homeowners insurance is required and flood insurance may be required. Rates current as of 06/01/20 are subject to change without notice.
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