Home Equity 101

Home Equity 101

So how exactly does this whole “home equity” thing work? Well, a Home Equity Line of Credit (HELOC) is a pretty common way to access the value that’s built up in your home. These loans work a lot like credit cards – they’re revolving, which means you don’t have to use the full amount all at once, and any payments you make can be borrowed again. The big difference is that since your home acts as collateral, HELOC interest rates are usually way lower than what you’d get with a regular credit card. So if you’ve got some major expenses coming up, a HELOC could end up saving you a ton of money in the long run.

Variable Rates, Explained

A lot of people get spooked by the idea of “variable rates” when it comes to HELOCs. But once you understand how they work, they’re really not as scary as they sound. Basically, the rate on a HELOC is made up of two parts – the Prime Index (a nationwide interest rate set by the Wall Street Journal) and a fixed “margin” set by your lender. The Prime Index part will go up and down over time as the economy changes, but your personal margin will stay the same for the life of the loan. So while the total rate can fluctuate, it’s not like it’s just going to skyrocket unpredictably.

How Much Can I Borrow?

If a HELOC sounds like it might be a good fit for your situation, the next step is figuring out how much you can actually borrow. Your lender will assess the current value of your home, subtract what you still owe on your primary mortgage, and then let you borrow anywhere from 70-85% of the resulting amount. As you’re crunching the numbers, make sure to factor in the minimum monthly payment and whether it fits your budget, especially if you plan to borrow the full amount. Our team will be happy to you through all the details.

At the end of the day, becoming a homeowner is an incredible feeling – putting down roots, building a life in a community. And when you need a financial boost, tapping into your home equity can be the perfect solution!

If you would like to learn more about Call Federal’s Home Equity products, contact our mortgage experts at 804-274-1200 or send us an email to [email protected] we would love to hear from you.