Owning a home gives you more than just a roof over your head. It’s also an investment that can offer you financial opportunities to assist with other life expenses by using the equity in your home.
UnitedOne Credit Union’s team of Local Home Loan Experts discuss home equity loans in their new podcast. Listen to it now and find out how you can name the show and win a $50 gift card!*
Meanwhile, here is a quick overview about home equity loans and insights from our Local Home Loan Experts in Manitowoc and Sheboygan.
What is a Home Equity Loan?
A home equity loan is a type of loan that allows homeowners to borrow against the equity they've built up in their property. Equity refers to the portion of the home's value that you own outright, minus any outstanding mortgage balance.
Home equity loans are secured loans, meaning your property serves as collateral for the loan. Because of this, they typically come with lower interest rates compared to unsecured loans, such as personal loans or credit cards.
“In this market it can sometimes be hard to sell your home and buy another one when you’re at such a nice, low interest rate on your first mortgage, and when you buy a house maybe rates are a lot higher right now,” said UnitedOne Mortgage Specialist Kari Johnsrud, NMLS # 441414. “So, what I’ve been seeing a lot of is people doing home improvements or additions to take their existing home and make it what they really want and what they need right now.”
Calculating Home Equity
To understand how much equity you have in your home, you need to calculate it.
The formula is straightforward: Home Equity = Current Market Value of Home - Outstanding Mortgage Balance
For example, if your home is currently valued at $400,000 and you have an outstanding mortgage balance of $250,000, your equity would be $150,000. As you continue to make mortgage payments and your property value increases, your equity grows.
Uses of a Home Equity Loan
Home equity loans can be used to cover costs for home improvement projects. However, it can also be used for other expenses not relating to your house, like debt consolidation, a vacation, college, emergency expenses or a wedding.
“A lot of times people don’t always know what (they can) use a home equity loan for,” said UnitedOne Mortgage Specialist Julie Peot, NMLS # 441412. “It’s pretty endless. It’s as simple as if you need to update some electrical, plumbing or need that new roof. It doesn’t have to be major remodel jobs. It can be very small. Maybe it’s starting with the garage or concrete work. We’re here to discuss any dollar amount. There is no minimum and maximum depends on that equity.”
It can also be used to invest in other property or leisure items.
“I’ve had people use some home equity to buy their dream land up North,” said UnitedOne Mortgage Specialist Linda Serrano, NMLS # 441416. “They want hunting land, or they just want to be able to have that cabin up North, and people have used the equity in their home to buy that.”
Being Prepared & Patience Key
Although there can be great excitement envisioning what you’ll use the equity in your home for, it’s important to plan ahead and be patient during the process of applying for a home equity loan. Please be aware of the different documents you’ll need before starting your application.
“A mortgage is not the same as a consumer loan where you can apply today and close on it tomorrow,” Serrano said. “We just want to give you a heads up that it does take us longer to get a loan because of compliance. … You just have to be prepared and know that the process on a mortgage is a longer process.”
A home equity loan can be a powerful financial tool for homeowners seeking to leverage their property's value for various purposes. However, like any financial decision, it's important to thoroughly understand the terms, risks, and potential benefits before proceeding.
Consulting with UnitedOne's Local Home Loan Experts can help you make an informed choice that aligns with your goals and circumstances.
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