What is a Home Equity Line of Credit?
A home equity line of credit (HELOC) uses the equity in your home (which is the difference between your home’s value and your mortgage balance) as collateral. Since HELOCs are secured against the equity value of your home, they offer competitive interest rates compared to unsecured borrowing options such as credit cards or personal loans.
You may be sitting on more equity on your property than you realize. The US Census reported the median sales price grew 19.9% from Q3-2020 to Q3-2021, to $404,700. And according to CoreLogic, a Fortune 1000 company that analyzes property information, homeowners with mortgages saw their home equity increase by 31% in 2021.
As you review your overall financial picture, you may be thinking of ways to keep building more equity or use what you’ve already got. Do you want to make significant updates to your existing home – a new kitchen or addition – or pay off high-interest credit card debt, student loans or take a much-needed vacation? A HELOC can help make your dreams a reality.
How much home equity do I have?
The first step is calculating your home’s equity. To do this, you’ll need the following.
Your current home value.
Online tools, real estate professionals, and appraisers can help give you an accurate snapshot of your home’s value.
The amount of your unpaid principal.
You can find out this number by contacting your loan servicer.
Then, divide your current mortgage balance by your home’s market value. For example, if your current balance is $100,000 and your home’s market value is $400,000, you have 75 percent equity in your home.
Ways to use your home equity.
Unlocking your home equity gives you financial options that can help you reach several financial goals. Here are a few ways to take advantage of your home’s equity.
Take a home equity lending product. Renovate your house or consolidate debt.
Using a home equity loan or home equity line of credit (HELOC), allows you to borrow money against the equity in your house as collateral, and use it for a renovation, consolidate debt or make a big purchase.
However, the IRS states that HELOC interest will only be tax-deductible if the borrowed funds are used to buy, build, or substantially improve the taxpayer’s home that secures the loan. So be sure to keep all your receipts for any remodeling you’ve done with your HELOC funds. Consult your tax advisor.
Refinance your current mortgage and take cash out.
A cash-out refinance lets you access your equity and refinance your home with a larger mortgage. The lender advances the additional amount in cash, up to certain percentage of your home’s value. Because a cash-out refinance is a standard first mortgage loan, not a secondary loan, you may also be able to take advantage of lower interest rates.
Sell your home and buy a new one.
Generally, you will want to have a minimum of 15% in equity – with more being better since your sales price must also include paying off the existing mortgage, closing costs, the new home down payment, and other associated expenses.
Your home offers you many options – now and in the future. Learn how to use the equity in your home. Contact your local branch or call our Customer Care Center at 1-888-317-9062.