What to consider when deciding whether to borrow against your home’s value
What is Home Equity?
Home equity is the difference between the appraised value of your home and the balance owed on your mortgage. If you’ve owned your home for a long time or if you’ve paid off a significant portion of your loan, you may be able to borrow money using the equity in your home as collateral.
Line of Credit Benefits
If you’re approved for a HELOC, you are extended a line of credit for a set number of years. You can borrow as much as you need, up to the limit. So, what you actually borrow against your equity can be flexible based on what you’re hoping to accomplish. A line of credit is different from a loan in that the line stays open as ongoing source of funds. As you pay down the line, more is available for you to borrow. It provides you what you need, when you need it.
Remember, borrowing against your home’s equity isn’t always the best option. Make sure you understand the benefits and the potential risks. Traditions Bank can help! Contact us today and find out if a HELOC makes sense for you!
How can a HELOC be used?
- Upgrade and Improve Your Home
Your needs change as you do. Sometimes, it’s necessary to make updates and improvements to fit your family’s lifestyle. Other times, repairs (like a new roof) are inevitable. Certain improvements, like adding square footage, or updating a kitchen or bath, can increase your property value.
Not all upgrades increase your home’s value. It’s especially important to think about their costs, how much you’re paying in interest, and potential impact on your home’s worth if you’re using a home equity line of credit to pay for them. - Consolidate Debt
In many cases, interest rates on a HELOC are considerably lower than other types of loans, like credit cards or car loans. If this is the case for you, a HELOC may be advantageous when consolidating debts. The benefits of using this method of borrowing depend upon your financial circumstances, interest rates on HELOCs are variable. This means that the rates change over time. The quicker you can pay it off, the less you will pay in interest. - Help with the Cost of Higher Education
If you or a child are headed to college, a HELOC can help manage those costs. You can borrow money to pay tuition upfront, then pay the debt off over the duration of your loan. HELOCs can offer better interest rates than private student loans.
Whenever you are considering borrowing money, it is important to evaluate YOUR needs, lifestyle and financial situation. Discretionary purchases, like weddings or vacations, are not the best reasons to utilize the equity in your home. Always remember, your collateral for a HELOC is your home. Defaulting on a HELOC can negatively impact your credit score or cause foreclosure. Want to talk more?
HELOCK as of September 20, 2023Rates may change without notice.
| Term | APR* | LTO |
| Home Equity Line of Credit with a Locking Rate | 8.75% |
During the Draw Period, this Plan contains an option to convert an amount up to the entire principal balance outstanding at any time from the variable rate to a fixed interest rate (“LOCK”). The plan could have different balances at different fixed interest rates as well as have a balance under the original variable rate terms. APR on fixed rate portions may be higher than variable rate.
You can exercise the option to convert to a LOCK only during the Draw Period. You may not exercise the option to LOCK if the credit limit will be exceeded.
There is a $100 fee for each LOCK established. The fee is waived if establishing a LOCK at the time of account opening.
The fixed interest rate for each LOCK will be based on the Bank’s prevailing fixed home equity installment loan interest rates at the time of your request, excluding any promotional rates that may be in effect at the time of the LOCK.
For each LOCK, you will be required to sign a Sub-Loan Conversion Agreement, the original principal amount must be at least $5,000, and the term cannot exceed ten years. You may have a maximum of three LOCKs outstanding at any time.
***Current APR is based on the Wall Street Journal Prime (WSJP) rate plus a margin and is subject to change monthly after the introductory period ends. The maximum APR is 18.00%. As of 7/28/2023, current APR information is as follows:
For line amounts of $50,000 or more the APR is currently 8.75% (WSJP + 0.25%). For line amounts under $50,000 the APR is currently 9.25% (WSJP + .75%).