Home Equity Loans and Credit Lines

If you own a home or part of a home and are tight on cash, you may want to consider a home equity loan or credit line. This allows you to convert your assets into the funds you need now while still retaining the use of your house.

When you sign a home loan, you agree to pay back the loan amount and stake your home as collateral. T&I Credit Union is a trusted financial institution that helps you borrow from your home to free up the funds you need now.

What is a Home Equity Loan or Line of Credit?

A home loan is a loan secured by your home. It can be a way to get funds to pay for large expenses or consolidate other debts. To qualify for a home equity loan, the value of your house must be greater than the amount you owe on it. This means you have home equity.

Loan or Line of Credit?

Credit is often extended for home equity in the form of a loan or line of credit. A home equity loan is a lump sum advance of the loan amount that you receive upfront. A line of credit is a source of funds to use as needed.

This revolving line of credit is like a credit card in that once you pay back your outstanding balance, your credit amount is replenished. You can borrow as much or as little as you need to as many times as you want during the draw period, provided that you make timely payments on all the credit you take.

How to Qualify for a Home Equity Loan

You must have equity in your home to qualify for a home equity loan. It is permissible to have an outstanding mortgage, but the value of your house must exceed the value of your mortgage.

At T&I Credit Union, you can borrow up to 80% of your home equity with a cap of $125,000. The actual loan amount you qualify for will depend on your credit score and credit history, employment history, monthly income, and monthly debts. These factors also have a role in the amount you can expect to pay in interest.

What to Expect in Interest Rates

When you make monthly payments on a home equity loan, you will pay a variable interest rate, meaning it can change each month. This rate is calculated by adding the index rate and a margin.

The index is a financial indicator that financial institutions use to determine rates on consumer loan products. At T&I Credit Union, as with many major banks, we use the US Prime Rate as published by the Wall Street Journal. The US Prime Rate is tied to the Federal Funds Target Rate, which is a method to keep inflation in check, and makes it easier for loan customers to compare loan products.

The margin, or profit, is often added to a home equity loan; it is based on the risk associated with offering the loan but remains constant throughout the loan period. At T&I Credit Union, our first priority is helping others achieve financial security, so we don’t charge a margin. The only interest you’ll pay is the US Prime Rate or 3.25% as of May 2020.

An additional benefit of a home equity loan is that your interest rate is not affected by your credit score. The interest rate you pay will be the US Prime Rate regardless of your credit history. Keep in mind that this means you won’t be in control of your interest rate; improving your credit score won’t decrease your home equity rate and this rate can go up or down from month to month based decisions from the Federal Reserve.

How to Improve your Credit Score

Improving your credit score won’t benefit the rate you pay on your home equity loan, but it will make unsecured loans cheaper and easier to come by. Managing your home equity loan well can help you improve your credit score.

Your credit score is an index financial institutions use to determine the risk associated with offering you a loan. If you have an excellent credit score, banks and credit unions will see that you are a reliable borrower, and offer you larger loans at lower interest rates.

When you make timely payments on your home equity loan, you raise your credit score by proving your credit-worthiness. Set up autopay on your home equity loan to make punctual payments and remember to include these payments in your monthly budget. Add a buffer to the interest rates to account for a rise in the US Prime Rate.

What to Know About a T&I Credit Union Home Equity Line of Credit

Loans are individualized products that vary based on lender policies and borrower characteristics. It’s important that you work with an official to ensure you understand the specific terms of the loan you are offered, but there are also some general terms of a T&I Credit Union Home Equity Line of Credit that you can become familiar with.

We don’t offer a fixed interest rate on a home equity line of credit; the APR will be the US Prime Rate for each borrower. We have other home loan products, including a home improvement loan, which features a fixed interest rate that will vary depending on your credit score.

T&I Credit Union does not charge a closing cost for loans ended before the 10-year repayment period. If you can repay your loan early and no longer need the revolving line of credit, you can end your home equity line of credit at any time for no extra charge.

The only origination fee we charge for a home equity line of credit is the $75 application fee. You’ll need to provide additional information at the time of application, including proof of your home’s value and documentation of your home equity.

Avoid Pitfalls

A home equity loan is a long-term commitment with a lot at stake; make sure you know the terms of the deal and are working with a trusted financial institution. After all, failure to repay the loan amount could cause you to lose your home if the lender must sell it to satisfy your debt.

When you sign for a home equity loan, you get a lower interest rate because the loan is secured with your house. The credit limit corresponds to the value of your home, which will need to be determined by an appraisal. Be prepared to pay for a title search and appraisal to access a home equity loan.

When discussing the terms of the loan with a representative, go over whether your monthly payments will cover the cost of the loan, or if you will owe principal at the end of the repayment period. Make note of this and budget accordingly.

Other Benefits of T&I Credit Union

When you take out a loan with T&I Credit Union, you’ll become a member and be eligible for subsequent benefits. We’re committed to helping you improve your well-being by offering the financial resources to help you reach financial stability.

Take advantage of our membership center to set up online and mobile banking and get answers to any other questions. We also offer free credit score analysis and a money managing tool so you can simplify your finances and make the most of your money.

How to Get Started

If a home equity line of credit sounds like the right solution for you, call T&I Credit Union at (248) 397-9345 to discuss the next steps.

This secured loan can be a great way to get funds for home improvement or repairs, unexpected emergencies, or other large expenses at a low-interest rate.

About Annie Marrian

Annie Marrian is a writer and former educator who studied economics at a major Catholic institution in the Northern United States. In her free time, she enjoys driving through neighborhoods and collecting For-Sale brochures.