You’ve identified a need in your finances, and a home equity loan is one possible route on the pathway to reaching your financial goals.  There are some attractive benefits of taking out a home equity loan: interest rates are typically much lower than your average credit card or personal loan, and with longer repayment options ranging from 10 to 20 years, the monthly payment is often lower. Here are a few points of consideration to help you determine if a home equity loan is the right fit for you.

Assess your situation

Do you want to save money on interest or lower your monthly payments? Lowering your interest rate can help save you money, but if your main concern is lowering your monthly payments then it might be time to see what can be eliminated. 

Consider your financial habits

Once you’ve consolidated your current debt, are there any changes you’ll need to make to avoid adding more debt to your plate? The credit union offers several resources to help you take a broad look at your current budget and see what steps can be taken to help you reach your goals. Budget tools are available in Online Banking that highlight spending trends and help you set savings goals. Additionally, BALANCE is a free resource for our members that offers assistance with finances including money and debt management.

Is a Home Equity Loan the right choice?

How long do you plan to stay in your home?  If you plan to move in the next few years, a Home Equity Loan will add to the amount you owe on your home and may not be an ideal choice. Feel free to ask us about other consolidation options.

If you plan to stay in your home for a few years, then a Home Equity Loan can be a great option. Refinancing your mortgage is another option to consider. Our Home Loan Officers can provide information to help you decide.

If you’ve decided using your home’s equity to consolidate debt is the right choice for you, there are two types of loans to choose from:

• Home Equity Loan

  with a lump sum, fixed rate and a set monthly payment. You can consolidate debt into one loan with one monthly payment and a repayment term up to 20 years. Paying more than the minimum amount will pay the loan off more quickly, saving you more money.

• Home Equity Line of Credit

  with a variable rate and a revolving credit line. You can access the credit line for 10 years, giving you flexibility to consolidate debt over time. The rate and monthly payment amount can fluctuate. The minimum payment during the first 10 years only requires you to pay the interest; paying more each month will reduce the principal as well. Once the 10-year draw period ends, you’ll have up to 20 years to repay the balance.

How do I consolidate debt using a home equity?

After your application is submitted, our home equity team reviews your request to get an idea of your financial picture.  We will reach out by phone within two business days to go over your request and let you know our initial decision.  If we can move forward, we will go over requested items and begin loan processing. 

Loan processing includes:

• Contacting your insurance agent to be added as a mortgagee.
• Sending out an agent to take photos of your home.
• Ordering a title report to ensure there are no ownership or lien issues.   

Once the loan is funded, we typically prefer to give borrowers full access to the money to use as they please. However if debt to income ratios or the total amount of unsecured debts are a concern, we may need to request statements and pay off creditors directly with loan proceeds. 

When we are unable to move forward with an application due to debt to income or unsecured debt usage, we always look for alternate solutions including counter offers.  Sometimes we are not able to move forward in any capacity, but we are always happy to fully go over the loan denial and help you make a plan so that in the future we may be able to successfully move forward.

A Home Equity Loan is a good option – and it’s just one of many that are available. Taking out a loan is a big financial decision, so it’s worth taking your time to ask questions and make sure you fully understand all of your choices. If you’d like to review your options, give us a call or stop by your local branch. If you’re ready now, you can apply online. Either way, we’re here to help!