If you're looking to tap into the equity of your home, it'll be worth your time to do some homework. Understanding the pros and cons of loan products on the market and how each might impact you can help you make the right decision for your needs.
To get you started, here are the five most common questions (with answers!) that we get about home equity.
How can I access my home’s equity?
There are three common ways to tap into home equity: cash-out refinance, fixed-rate home equity loan, and a home equity line of credit, or a HELOC for short. With a cash-out refinance, you will be able to pay off your existing mortgage and get a cash payment for the remaining balance of the new loan. A fixed-rate home equity loan, often called a second mortgage, lets you borrow one time at a fixed rate. With a HELOC, a credit line is established against the equity in your home, allowing you to borrow as needed.
What's the downside to tapping into home equity?
As with a first mortgage, home equity loans and home equity lines of credit must be paid on time. You are putting your house at risk if you do not meet the terms of the agreement because your home is collateral for the loan.
Will I need to get my home appraised?
Yes. A professional appraisal will indicate your loan-to-value ratio, which is necessary to determine how much equity is in your home.
Will I have to pay private mortgage insurance (PMI)?
Private mortgage insurance is not required on our HELOCs (home equity lines of credit). PMI only applies to first mortgages.
What will my closing costs be?
Borrowing against home equity can feel like financing a first mortgage. There may be closing fees, such as an application fee, loan processing fee, points, origination and underwriting fees, appraisal fee, broker fee, recording fee, and annual fee. Not every lender will charge these fees, so it is recommended that you spend time comparing offers. At Hanscom FCU, you will not incur closing costs on a home equity line of credit.*
Ask questions of several lenders to understand the variety of home equity products on the market and what is required of each. A little homework now will help your home’s equity work for you in the future.
*If you terminate your line within the first 24 months after closing, you will be responsible for closing costs.
Please refer to the Closing Cost Addendum you received at loan closing for the total amount of your closing costs.
Hanscom Federal Credit Union offers a 3 in 1 Advantage Plan, a flexible way to access your home’s equity. It includes a line of credit, with options for fixed loans and a credit card. Learn more at hfcu.org/equity.
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