What Is A Home Equity Loan?
A home equity loan is a type of credit that lets you borrow money from the bank against the equity of your home. The amount is determined by the difference between your house’s market value and the remaining mortgage credit.
If you qualify for a home equity loan, you can use it for your life’s significant expenses such as home renovation, emergency medical bills, or to pay off debt.
As a comprehensive financial service provider, the Credit Union of Southern California (CU SoCal) offers easy home equity loan plans so a shortage of capital doesn’t stand in the way of your financial needs.
With more than 60+ years of experience in offering a wide range of financial services, and an 87% customer satisfaction rate, we can help you get a home equity loan at a competitive rate.
If you are determined to apply for a home equity loan without incurring any additional charges, why not apply now and see what CU SoCal has to offer?
How Do Home Equity Loans Work?
Home equity loans are easier to acquire than other types of personal loans. Moreover, they feature easier payment cycles as they can be paid back monthly over a pre-determined term, just like your mortgage payments.
Once you have made up your mind to apply for a Home Equity Loan, the next step is to calculate the amount you can borrow.
For this, calculate the equity in your house or the amount of money you are qualified to borrow. Estimate your home’s market value and subtract your remaining mortgage balance from it to arrive at this amount.
If you are wondering what equity in a house is, let us help you. It is the amount of money you own for your property according to its market value and remaining mortgage credit.
Your house is set as collateral in the home equity loan, which indicates the possibility of foreclosure in case you are unable to pay the loan amount.
Let’s use an example: assume your house is valued at $500,000 while you owe $140,000 for your mortgage credit.
Now, if your loan providers offer you 80% of the loan to value ratio, 80% of $500,000 will be 400,000. Subtracting your mortgage
amount will give you a value of $260,000. This is your equity amount, i.e., the most you can borrow.
Why Take Out A Home Equity Loan?
Usually, people take out a home equity loan to pay for any unexpected expenses or debts. But you can apply for a home equity loan for various other expenditures as well.
Wondering what you can do with a home equity loan? The following are some ways you can use the loan money.
Funding for house renovations or upgrades is the primary reason homeowners take out a home equity loan. Such renovations include patio makeovers, garage replacements, or building a new deck. This increases the market value of the property.
Going to college
Home equity loans can be sufficient enough to pay for college fees, especially since their interest rate is lower than a student loan.
But before applying, you must determine the student loan interest rates or the monthly payments you will have to make and if you have enough money to pay it all off.
Covering an emergency expense
If you are suddenly faced with expensive medical bills, unexpected travel, or job loss with no contingency plan, home equity loans can help you meet your financial obligations.
But since you are putting your house as collateral, you must have a financial backup plan in the case so that you don’t end up losing the house.
A home equity loan can be used to pay off massive debt, such as an auto loan or an increasing credit card balance. But make sure you have a backup plan, so you don’t end falling into another debt trap.
Long term investments
Many people use home equity loans to invest in real estate or stocks to receive a higher return than their equity loan, but that’s a risk. There’s no certainty if you will get the return you are expecting.
This requires a thorough background check of the venture you are investing in so that you don’t end up losing your house.
How Much Can You Borrow With A Home Equity Loan?
The actual amount of your equity loan depends on the market value of your home and the amount of mortgage you are left with.
Loan providers offer the maximum loan amount of up to 80% or 85% on your home equity. So, if your home’s market value has increased or you are left with a meager mortgage amount, you can apply for a home equity loan.
You have the choice to borrow any amount of money up to the percentage limit set by the loan provider.
Requirements For A Home Equity Loan
The requirements for a home equity plan vary with each loan provider.
But in case you want to know what is needed for a home equity loan, these are just a few of the standards:
- A debt to income ratio of 43% to 50%
- A credit score lying in the mid-600 range
- Equity of at least 15% to 20%
Pros And Cons Of Home Equity Loans
Now that you know what you can do with home equity, here are some pros and cons that need your thorough consideration.
Pros of home equity loans
One of the most significant benefits of a home equity loan is the lower and fixed interest rate that you will not find with any other type of loan. Also, you can easily get your hands on a massive amount of money with no hassle in a short time.
Moreover, if you utilize the loan for home improvement, you can deduct the interest from your taxable income and lower your tax expenses.
Cons of home equity loans
When you apply for a home equity loan, you are at risk of losing your house to the lender. Also, if you are already taking this loan to pay off any debts, chances are you will owe even more debt if you do not have the financial backup to pay for the second one.
This increases the risk of bankruptcy, and chances are you will face foreclosures if you are not able to pay back.
Home Equity Loan Vs. HELOC
Home equity loans differ from home equity lines of credit in their interest rates; the former has a fixed rate while the latter has a variable rate.
Moreover, the home equity plan allows you to repay the lump sum amount of money provided to you in 5-10 years. On the other hand, HELOC provides revolving credit that can be paid in 10-20 years.
CU SoCal Home Equity Loans
CU SoCal provides home equity plans at competitive rates and with the added benefit of no additional costs. We offer a maximum amount of up to 80% on your home equity that you can use to meet your financial needs.
We charge no appraisal fee, no annual charges, and no closing costs, which makes us the first choice for many homeowners in Southern California. With a low fixed interest rate of 5.75% APR, you can comfortably repay the loan in 15-25 years.
To qualify for a home equity loan with us, you need to present sound credit history, employment record, income, and the amount you need to borrow determined according to your loan to value ratio.
Apply For A Home Equity Loan Today!
CU SoCal has been in the business for over 60 years, working with more than 500 businesses. So it’s no wonder that we are the first choice for all kinds of financial services in Southern California.
Now that you are familiar with how home equity loans work, let us help you secure reasonable terms for your loans. In addition to our home equity loans, you may also benefit from CU SoCal’s HELOC loan plans.
Apply for a home equity loan
with us or get in touch to learn more about our loan plans.