FAQ’s of Home Equity Loans
As we move through 2022, you may have some unaccomplished goals or plans for the rest of this year. Big plans – such as a wedding, dream vacation, sending your child to college, or making those necessary home improvements for your growing family – may seem unattainable without the proper funds. Utilizing the equity you’ve built in your home could be a cost-effective way to access some cash.
We have created a list of “Frequently Asked Questions” about home equity to help you understand if this option is right for you AND your budget!
What is Home Equity?
Simply put, your home’s equity is the amount of your home that you actually own. If you have a mortgage that you are currently making payments on, you only own the percentage of your home that you’ve paid off. To calculate your home’s equity, determine the difference between your home’s market value and what you still owe on your mortgage – this difference will be your home’s equity or – Home Equity = Appraised Market Value – Mortgage Balance.
How do you build equity in your home?
There are two ways to do this – first, paying down your mortgage principal by making regular, on-time payments will decrease the debt on your property and increase equity. Second, increasing your home’s appreciation creates more equity. This can be a variable factor as market value can increase and decrease with broad market conditions and may not be the most reliable way to build equity.
What is a Home Equity Loan?
A home equity loan – or second mortgage – is a consumer loan product that allows a homeowner to borrow against the equity in their home. Like that of a traditional mortgage, a Home Equity Loan has a predetermined payoff structure. If a borrower is unable to pay off their Home Equity Loan within the terms and agreements of their loan, their home could be collected as collateral. Home Equity Loans are determined by many factors including combined loan-to-value ratio and credit score and payment history of the borrower. At NCFCU, you can select the type of home equity that works best for you and your goals. We offer 85% Loan to Value on fixed-rate Home Equity Loans with terms up to 15 years. You can begin your application process online at NCFCUonline.org.
What can a Home Equity Loan cover?
There are many ways to utilize the funds from your Home Equity Loan, such as debt consolidation, home improvement, tuition costs, a dream vacation, wedding, business or emergency expenses – just to name a few.
There are many benefits to Home Equity Loans, but what are the risks?
Acquiring a Home Equity Loan could be a beneficial financial option for you – but there are risks, as with any consumer lending product. The biggest risk – your home is on the line. Missing or neglecting to pay your Home Equity Loan could lead to the loss of your property, plus unpayable debts. Also, equity is based off of current market values, therefore it can decrease and increase regardless of perfect payment history on your Home Equity Loan. Adding a Home Equity Loan to your financial portfolio could cause your credit score to drop initially. One major factor affecting your credit score is your available credit – adding a large loan amount can negatively impact this and cause your credit score to decrease.