Springtime brings the promise of renewal—not only for flowers and trees, but also for the housing market. Rejuvenation looks to be under way, with fewer foreclosures and increasing property values. As a current homeowner, that puts more equity in your hands, and in turn may have you asking how you can use it. If you’re thinking of getting a Home Equity Loan, here are the top three things you’ll need to know:
Know where you stand
Spring-cleaning shouldn’t be limited to chores and yard work. You should take some time to clean up your credit as well. Check your credit score for free before you start your loan process. It may have been awhile since you applied for your home loan—you’ll need to revisit the report and check for inaccuracies. They may cause you to pay a higher rate for your equity loan, or miss out on the opportunity altogether.
Keep in mind that lenders typically want you to have at least an 80% loan-to-value ratio, which is the remaining balance on your loan compared to the value of the home. This is because your home is the collateral used to secure the loan—which means you should also evaluate if this loan is good for your long-term outlook. It’s a good idea to use an online calculator to determine if repayment plans fit in your budget.
Know your goals
Take a look at what you’re really going to use your equity for. Decide if you need a large amount of funds at one time, or you need the flexibility to draw funds as you need them for a project. Are you looking to consolidate debt? Then a fixed equity loan is what you want. Your lender gives you the fully approved amount at closing with a fixed interest rate and monthly payments that never change. Perhaps you’re looking to finish your basement or pay for college tuition. Then, a home equity line of credit (HELOC) would make better sense, as it allows you to draw funds as needed, up to the approved amount. HELOCs have a variable rate, and you only pay interest on the amount you borrow. Navy Federal’s draw period is 20 years, which will offer you maximum flexibility to use your funds when and how you need to.
Know your options
When it comes to fees and interest rates on equity loans, it’s best to shop around and compare all costs involved. In addition to comparing the lowest interest rate, make sure you look closely at any fees and balloon payments. You may get a better deal for your home equity loan or line of credit from a different lender than the one that gave you a home loan – the two loans aren’t connected in any way. Credit unions such as Navy Federal tend to have lower interest rates, fees, and personalized service. Once you’ve closed on the loan, most lenders sell the servicing to other lenders. Navy Federal will always be the service provider for the life of its loans. This means you’ll always have one place to call for payments or questions.
Just as the seasons change, so do your financial goals and needs. Taking a closer look at your current financial status, thinking about what you’re trying to achieve, and doing some good old fashioned homework can help spring you into the right home equity loan.