Home Equity. Rates are low, can you use your home’s equity to your advantage?

Home values are increasing, rates are at an all time low and homeowners are finding they have more equity in their homes.  In fact, the amount of equity found in people’s homes is at its highest rate today since 2006. 

What is Equity?
What is Equity?  Simply put, equity is the difference between how much your home is worth and how much money you own on the home.  Here is a simple equation:

Market Value of Your Home – All Mortgage Debt = Equity

So if you purchased your home for $250,000 and you owe $200,000 on your primary mortgage, you have $50,000 in equity.

Typically a homeowner can borrow up to 80% of their home’s value.

So if you have some equity in your home and you need cash, a Home Equity Loan or Home Equity Line of Credit might be a good way to secure the cash you need.

Reasons to Apply for a Home Equity Loan
There are many reasons people apply for a Home Equity loan.  A few of the most common reasons are listed below:

  • Make home improvements
  • Consolidate debt
  • Paying for college

Is there more than one type of Home Equity Loan?
There are two main types of Home Equity Loans; The Home Equity Loan & Home Equity Line of Credit or HELOC.

  • The Home Equity Loan (WVFSL calls it our Closed End Home Equity Loan) is a lien on your home for a fixed amount.  Once the loan is approved, you take all the cash out at one time and then pay the amount back over a 5 – 15 year period of time.  The rate of the loan is fixed as is the payoff period. 
  • The Home Equity Line of Credit (HELOC) is a lien on your home with a variable rate that works kind of like a credit card.  You will be approved for a HELOC for a specific amount (for WVFSL up to $150,000) and you take the cash out as needed over the 15 year term of the loan. The rates for a HELOC are variable and based on prime.  So as rates increase, so does the interest on a LOC.  Repayment for a HELOC begins monthly once any funds have been used.  The monthly payment is $100 or the interest + .50% of the principle, whichever is higher.  There is no pre-payment penalty however you do pay mortgage tax fees and recording at closing. 

Choosing which Home Equity Loan product is right for you depends on many factors.  If you are unsure which would be the best for you and your situation, we recommend giving us a call and setting aside some time to speak to one of our loan specialists.  Since we do all loan approvals right here in-house, we are able to provide our customers with “inside” information that can lead you to the product that is best for your financial future!