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No Place Like Home Equity

No Place Like Home Equity


No Place Like Home Equity

Home equity is the difference between the value at which your home has been appraised (or the market value) and the remaining outstanding balance you carry on your mortgage. With the rise in home prices that we’ve seen in recent years, you may be surprised to find the equity in your home to be greater than you think. This equity can be a valuable asset that you can use in a variety of ways to improve your financial situation.

There are two ways you can access your home’s equity.

  1. Home Equity Loan - Just like other closed-end loans, home equity is a lump sum of money borrowed against that equity, with a fixed interest rate and a repayment plan in place with a specific pay-back date.
  2. Home Equity Line of Credit, also known as a HELOC - A HELOC is a revolving line of credit that you can use as needed and pay back, similar to a credit card. It’s important to know that usually, a HELOC has a variable interest rate, typically tied to the prime rate at the time.

We recently sat down and chatted with one of our Mortgage Experts, Steve, who specializes in Home Equity Loans and Lines of Credit. Check out the CSE Couch Chat video here.

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Though it can be helpful to tap into your home’s equity through a Home Equity Loan or a Home Equity Line of Credit (HELOC), most lenders may limit the amount you can borrow. Typically we see no more than 80-90% borrowed against the home’s appraised equity.

If you’re wondering what you could use a Home Equity Loan, or a HELOC for, there are a wide variety of options!

Steve, our Mortgage Loan Officer who specializes in Home Equities tells us, “Generally members are looking to consolidate debts or tackle home improvement projects. There’s a segment of members who also use their HELOCs or a Home Equity loan to help fund their child’s college tuition, purchase a second home, or invest in a rental property. With that said, I have done equities for members paying for fertility treatments, weddings, funding the start of up their own business, or things of emergent need such as funeral expenses or attorney’s fees.”

After chatting with Steve, we see that our members really know the value of their home, and reach out for a variety of wants or needs when it comes to financing with a Home Equity Loan or HELOC.

Steve also made mentioned that “home values are still really high and that provides members the ability to access this greater home value, so we’re seeing that 90% of the financing we’re providing is for home improvements right now. Plus, in the current economy, folks are hesitant to spend funds in their savings, which is why they search for and choose a Home Equity Loan or HELOC instead of dipping into savings so that they have it for emergencies.”


Here are some of the primary reasons members use a home equity loan:

  • Home Improvement – From fixing your heating or air units to adding a deck, redoing floors, and more, many members make improvements to their homes to increase their value, and of course, enjoy it!
  • Dreadful Surprises – You should always expect the unexpected, right? Well, if you have equity in your home, you may be able to have a little wiggle room in your finances to help cover the costs. This may be for a breakdown of a vehicle or large appliance, funeral expenses, attorney fees, etc.
  • Education – Planning on some higher education for yourself or your family? Many members use their home’s equity to assist with tuition in lieu of taking out student loans which typically have higher interest rates.
  • Debit Consolidation – Debt is a heavy burden to bear; some will use these funds for consolidating debts to get a lower interest rate, or reduce their monthly payment.

The good vs. the bad:

You may think that it’s a benefit to tap into your home’s equity. It can provide flexibility (especially within a HELOC as it’s a revolving line of credit), potentially lower interest rates, access to a significant sum of money depending on your available equity, the potential to increase the value of your home (if you’re using equity for improvements), or even consolidate your debts which may make life easier. However, it’s also important to note that tapping into your home equity does come with risks. If you are unable to repay your home equity loan or HELOC, you could lose your home to foreclosure. Additionally, if you use your home equity to fund discretionary expenses, such as a vacation or luxury car, you may end up in a worse financial situation than before.

Things to consider before filling out a Home Equity to HELOC application:

  1. Available Equity: How much equity do you have in your home? You typically need at least 20% equity to qualify for a home equity loan or line of credit. If you have less equity, you may not be able to borrow as much, or you may not qualify at all. Get an idea of what your equity might be by looking at Zillow or estimates on your home, and subtracting the balance of your mortgage.
  2. Interest rates: The interest rates on home equity loans and lines of credit can vary based on several factors, including your credit score, the amount you want to borrow, and the current market conditions. Generally, it's a good time to consider a home equity loan or line of credit when interest rates are low.
  3. Financial goals: It's also important to consider your financial goals when deciding whether to use your home’s equity. For example, if you want to fund a home renovation project or consolidate high-interest debt, using your home equity may be a good option. However, if you are considering using your home equity for discretionary expenses, such as a vacation or new car, it may not be the best financial decision if you’re already feeling the stress of a tight budget.
  4. Repayment ability: Before applying for a home equity loan or line of credit, it's important to evaluate your budget and your ability to repay the loan. Make sure you can comfortably afford the monthly payments and that you have a plan for paying off the loan within the repayment term.


Ready to get started?

Applying for a home equity loan is easy, and the deal can be completed in about four weeks, sometimes longer if issues arise.

When it comes to the costs, CSE covers the Appraisal, Title Examination, Flood Certification, and Recording/Filing Fees. The member may have to pay for a Verification of Employment depending on the employer.

If you’re considering home equity loan or line of credit, contact one of our Mortgage Experts to help you carefully evaluate your options and ensure that this is the right path for you.

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