Put Your Home’s Equity to Work for You

October 20, 2020
If you’re thinking about making some home improvements or looking at ways to pay for your child’s college education, you may want to start thinking about tapping into your home’s equity, which is the difference between your home’s market value and what you own on the mortgage, to cover those costs.

There are two ways you can use your home equity; a loan or a line of credit. With a home equity loan, the financial institution advances you the total loan amount upfront while a home equity line of credit provides a source of funds that you can draw on as needed.

Home Equity Loan

A home equity loan is a loan for an amount of money that is secured by your home at a fixed rate that is typically lower than almost any other type of loan. A home equity loan comes as a lump sum of cash. It’s a good option if you need money for a major expense, like a wedding, making a home improvement or major medical bills. These loans usually offer fixed rates, so you know precisely what your monthly payments will be.

A home equity loan generally allows you to borrow up to 100% of your home’s value, less what you owe on your mortgage. You repay the home equity loan — principal and interest each month — at a fixed rate over a set number of months. Be sure that you can afford this second mortgage payment in addition to your current mortgage, as well as your other monthly expenses.

Home Equity Line of Credit (HELOC)

A home equity line of credit is a bit different. They are a revolving source of funds, much like a credit card, that you can access as needed. Most financial institutions offer several different ways to access those funds, such as an online transfer, writing a check, or using a credit card connected to your account. Unlike home equity loans, they tend to have few, if any, closing costs, and they usually feature variable interest rates. Many financial institutions, including Point Breeze Credit Union, also offer an interest-only option. With an interest-only home equity line of credit from Point Breeze, you can borrow $25,000 for just $20 a month.*

Lines of credit offer significantly more flexibility. You can borrow against your credit line at any time, and untapped funds do not incur interest. In that way, it’s a nice emergency source of funds (as long as your bank doesn’t require any minimum withdrawals). Especially now—if you've lost your job because of the Coronavirus, need cash, and have equity in your home—getting a HELOC may be a good option.
If a home equity loan or line of credit seems right for you, or you simply want more information, call us at 410.584.7228, option 4, to schedule an appointment with one of our expert loan officers.