What are Home Equity Loans and Lines of Credit?

If you've never had a home equity loan or a home equity line of credit, it can be confusing. Here are a few home equity basics to help you. Premier Equity home equity loans and lines of credit can only be offered as an additional financing option when you refinance your first mortgage with us — otherwise known as a combination mortgage. If you would like further explanation on any aspect of home equity loans, talk to one of our friendly and knowledgeable Account Executives. They're here to answer your questions.

Home equity loans or lines of credit are also referred to as second mortgages. These second mortgage loans work like traditional home loans and are secured by your home. Home equity loans and lines of credit generally have interest rates lower than most credit cards.

The difference between a home equity loan and a home equity line of credit is that with a home equity loan you get all of the money at once and the loan usually has a fixed interest rate. A line of credit has an initial time frame where you can reuse the money as often as you like, up to your approved credit line amount (the draw period) followed by a period where you pay off the entire balance without the ability to withdraw any additional funds (the repayment period).

Equity refers to the portion of a home's value that the homeowner owns outright. If your home is worth $150,000, and the amount due on your current mortgage is only $50,000, the equity that you have in your home is $100,000. There are low equity loan options available.

Tax benefits - In many instances, the interest on a home equity loan of up to $100,000 can be fully tax-deductible up to 100% of your home's value. Consult your tax advisor.

People frequently choose a home equity loan to consolidate high-rate debt, such as credit cards, or to finance large expenses, like college, remodeling or home repair. The loan provides a lump sum of money at a fixed interest rate with a fixed repayment period and the same monthly payments for the life of the loan.

A home equity line of credit sets a credit limit and allows the homeowner to withdraw and reuse money as needed. This is most often done with a check book. There is often a minimum initial withdrawal requirement. You only pay interest on the amount that you have withdrawn and not yet repaid. A home equity line of credit usually has a variable interest rate, and a fixed period of time where you can borrow and repay as often as you like followed by a specific time period during which you pay off the loan.

As another alternative to a combination mortgage, you can refinance your current first mortgage with a cash-out first mortgage. This is a loan where you can take out cash that is in excess of the amount that you owe on your current first mortgage up to 90% of the home value. The new loan is used to pay off your old mortgage plus you can take out additional cash. This mortgage usually has a lower interest rate than a typical home equity loan.

You may have the option to obtain a lower interest rate by paying discount points. One point represents one percent of the loan amount.

To see if a Premier Equity first mortgage or combination mortgage is right for you, and which products and options are available in your state, complete our short online form. A Premier Equity Account Executive will contact you within one business day to discuss how much you could save in the coming months. There's no obligation.