Making Home Equity Work For You

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by Kerri Fortner, Real Estate Lending Manager

For most of us, our homes represent our single largest investment. Over the years, the value built up in our homes can become a great asset. You may be ready to turn that value into some much needed cash, but aren’t sure which is the best way to go about it! Call Federal is here to help you decide whether a home equity loan (sometimes called a “second mortgage”) or a home equity line of credit (usually abbreviated HELOC) is right for you.

There’s a common misconception that home equity loans can only be used for home improvements, when, in fact, they can be used for a variety of needs, from consolidating high-interest debt, to paying for college, or even taking a dream vacation. But before we start spending, let’s get a better understanding of what equity is. Simply put, equity is the difference between what your home is worth and how much you still owe on it. For example, a home worth $250,000 with $100,000 still owed has $150,000 in equity.

Now – what’s the difference between a home equity loan and a HELOC? A home equity loan is a one-time loan for a fixed dollar amount, at a fixed interest rate, with a fixed term of repayment. This type of loan has a pre-determined monthly repayment amount for up to 15 years. Home equity loans are great for one-time purchases like a home remodeling project or even a new car.

By contrast, a HELOC is a variable-rate loan with a predefined “draw” period, where the funds can be taken all at once or at different times. During this timeframe, you can borrow up to the credit line maximum, but only pay interest on the money you’ve withdrawn. For example, if you’re approved for a $50,000 equity line but only take out $15,000 right now, you are only charged interest on the $15,000. Any amount paid back is fully renewed and available to be borrowed again, making HELOCs a smart way to pay for recurring expenses like college tuition.  The typical draw period for a HELOC is 10 years, followed by a 10-year repayment period.

So, now you know the basic differences between the home equity products we offer here at Call Federal. If you’re ready to take the plunge, apply today! If you still have more questions, check out the Home Equity page, where you’ll find more details as well as ways to reach out to our home loan specialists for a personal consultation.

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