Home Equity Loans - Putting Your Equity to Work for You

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Like many homeowners, you’ve probably seen your home’s equity increase with your disciplined monthly payments toward your mortgage balance. Did you know that your equity may be an inexpensive source of credit? It has the potential to fund financial goals for you and your family.

Borrowing against the equity in your home offers two major benefits: 1) lower interest rates than most other forms of credit, and 2) the interest you pay may be tax-deductible. Tax-deductible interest lowers your borrowing costs even further, but you should consult with your tax advisor about your specific situation.

Flexible Funding for Your Goals

Debt consolidation is just one of many uses for your home’s equity. The low interest rate, coupled with any tax break, can make it possibly the least expensive borrowing option available. You may be able to consolidate your higher-interest debts into one, lower monthly payment.

In addition, you may want to consider borrowing against your equity to fund such goals as:

  • Home remodeling.
  • A wedding.
  • College tuition.
  • A dream vacation.
  • A new vehicle or boat.

Your Borrowing Options

There are two simple ways to get at the money built up in your home:

Home equity loan. Sometimes called a second mortgage, a home equity loan allows you to borrow a lump sum to be paid back in monthly installments over a specified period. This loan option is best for major purchases or one-time expenses, such as a home remodeling project. Most home equity loans have a fixed interest rate for the term of the loan.

Home equity line of credit. Rather than receiving a lump sum, this option lets you borrow against a given credit line as you need it. You can access your money by writing checks linked to the account. This option is good for expenses that are paid in installments, such as college tuition, and interest accrues only on the amount you actually use. Home equity lines of credit generally offer an adjustable rate with a minimum monthly payment based on the outstanding balance.

If you use your home's equity as a source of credit, it's important to remember that failure to repay the amounts you've borrowed, plus interest, could mean the loss of your home.

Shopping for a Home Equity Loan or Line of Credit

Before opening up a home equity loan or line of credit, explore your options for financing. Credit unions are a good source – they generally offer their members lower interest rates and loan fees than most banks. Check out several sources and compare the rates and terms.

CTA's endorsed credit union offer members competitively priced home equity loans and lines of credit. For more information, visit Provident Credit Union.