Home equity — what is it good for? Homeowners who have made a dent in the overall cost of their house have access to a noteworthy financial perk: a secured loan with low rates. If you’re in the market for a frugal way to take care of expenses or fund a project this summer, then a home equity loan or home equity line of credit might be right for you.
So is a home equity loan a good idea? While we can’t argue with the benefits that come from a loan that doesn’t break the bank, there are a few things to consider before you start the process of applying. Let’s break it down!
The Purpose of Your Loan
By putting two and two together, you’ve probably already guessed that home equity loans have something to do with your house ….. but it’s important to note that they weren’t designed only to fund home renovations. While tapping into your home’s equity to pay for a major renovation or a few projects here and there makes sense, these loans can be used to fund just about anything your heart desires.
Many people opt for a home equity loan when deciding to borrow because it is a secured loan — meaning that it is backed up by the money you’ve already invested into the house you own. Because of this, your lender has a better understanding of your current assets compared to if you were to take out an unsecured personal loan. The wonderful end result is you can expect better interest rates with a home equity loan or home equity line of credit.
Home Equity Loans vs. HELOCs
At Members 1st of NJ Federal Credit Union, you can access both fixed-rate home equity loans and home equity lines of credit (HELOCs) with manageable rates. But what’s the difference between the two? For starters, both a home equity loan and home equity line of credit can be used to finance a home renovation, major purchase, or whatever you need. They differ in the time frame in which you receive your funds.
Home equity loans provide borrowers with a lump sum of cash upfront that will be paid off over time. HELOCs, on the other hand, are a revolving line of credit (similar to a credit card) that you can access whenever needed. That’s why it’s important to consider what purpose you plan on borrowing for prior to deciding between a home equity loan and HELOC.
The guiding principle for choosing a home equity loan is that you have a pretty clear idea of what it is you intend on funding — such as a major bathroom remodel with a set budget in mind, or a semester’s worth of college tuition. Since HELOCs are a more flexible option, they’re a good idea if you plan on funding a few smaller purchases here and there over time.
The Life of the Loan
Last but not least, how long do you intend on contributing to what you borrowed until it is fully paid off? To ensure that your payments are manageable and fit within your budget, it’s essential to calculate an appropriate life of the loan. Members 1st proudly gives its members flexible options on home equity loan terms, ranging from 5 to 20 year repayment plans. You can even use one of our loan calculators to estimate how much you will owe monthly based on the loan amount, interest rate, and term.
With fixed-rate home equity loans as low as 2.99% APR* and home equity lines of credit interest rates beginning at 3.25% APR*, there’s never been a better time to borrow for exactly what you need. Learn more about how you can tap into your home’s equity with a loan from Members 1st.
*APR=Annual Percentage Rate. Rates effective June 1, 2021 and subject to change without notice. APR may vary based on creditworthiness, loan amount, security offered, and combined Loan-to-Value (LTV(. Rates shown are for qualified borrowers and subject to age of collateral and term. Variable APR is good on new loans and initial draw. Contact the credit union for the complete details. Fixed rates range from 2.99% APR to 6.49% APR. LOC rates range from 3.25% APR to 6.25% APR. Loan repayment terms range from 5 to 20 years. Exact rates and repayment terms depend on loan specifications. Contact the credit union for complete details.