Financial Advice

Buy & Own a Home

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Home Equity Loan Basics

A home equity loan is a mortgage against your home. Generally, Home Equity loans are second mortgages, but, depending upon your financial needs, it can also refinance your first mortgage while providing you with cash at closing.

Determining whether it’s best to refinance or to obtain a home equity loan is very complicated and depends on many factors.

Comparing monthly payments of your existing first mortgage and a new home equity loan, as opposed to a new first mortgage, should help. In the State of Texas, once you include a Home Equity loan into your first mortgage, you will have to refinance the entire loan balance to obtain additional “cash out” in the future. This could prove an expensive option.

Things to consider in a Home Equity Loan

Interest payments on home equity loans – up to $100,000 – may be tax deductible. The money you borrow can be used for any use you choose. The money you borrow does not have to be used for home improvements – and the interest is still tax deductible. While interest rates on home equity loans tend to be lower than on other forms of consumer credit, home equity loans typically are for longer terms – from 5 to 15 years. Thus, you’re likely to end up paying more interest over the life of the loan than with shorter-term debt options.

Home Equity Rules and Regs

Texas had to pass a State Constitution Amendment to permit equity lending in a State that takes the sanctity of its homesteads very seriously. A home equity loan can only be as high as 80% of the current market value of your home and that 80% must include all liens on your property. There is a waiting period after you apply, so that you have time to change your mind, and even after closing you have three days before we can fund your loan to rescind the transaction.

Some members may find the time frame frustrating, particularly if their need for cash is immediate. Your Home Equity Loan Officer will be able to offer other credit options within UFCU if the state-mandated time frame doesn’t match yours.