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    Home equity loans (HELOANs) and home equity lines of credit (HELOCs) are secured options that use your home as collateral and allow you to access the equity in your home. Home equity loan interest rates and financing fees are often lower than unsecured borrowing sources like personal loans. In most cases, they don’t require you to refinance your original mortgage. This allows you to keep your current mortgage rate and term intact.

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    HELOAN Features


    • Ability to draw on home equity
    • Fixed rate/term second mortgage
    • Lump sum given for a current need
    • Fixed/equal payments
    • Interest rate may be higher overall



    HELOC Features


    • Ability to draw on home equity
    • Mixed term: draw, payback stages
    • Revolving line, use when needed
    • Variable payments over loan’s life
    • Rate may start lower then rise


    Topics Below

    I. Eligibility Requirements
    II. Key Factors | Interest Rates
    III. Our Approach
    IV. What is Home Equity?
    V. Calculate Home Equity
    VI. Uses: Home Equity
    VIII. How to Apply
    IX. Repayment
    X. FAQs

    I. Eligibility Requirements¹

    • Debt-to-Income (DTI) ratio of 43% to 50%
    • FICO® score of 680+
    • Home equity of at least 15%
    • Appraisal necessary to determine home’s fair market value

    II. Key Factors | Interest Rates

    HELOC and home equity loan interest rates are set by the lender. Some factors include:

    • Fixed or Adjustable Rate
    • If fixed-rate loan, Loan Duration (e.g. 30 year vs 15 year)
    • Credit Score
    • Previous Loan Repayment History
    • Current Market Conditions

    For HELOCs, most lenders use the U.S. Prime Rate as an index to set the variable base rate. A fixed percentage is typically added to the variable rate (also called a margin) which determines your overall rate. However, because the U.S Prime Rate frequently changes, home equity loan interest rates also change. Concerned about qualifying with your credit score? Let’s schedule a call.

    III. Our Approach

    HELOC and home equity loan interest rates, like other loan aspects, have many moving parts. Each borrower is unique. Your loan officer becomes your single point-of-contact to ensure clear, timely, and tailored communication. We answer questions, promote understanding, clear hurdles, and hustle to deliver your loan sooner.

    IV. What is Home Equity?

    The difference between the appraised value of your home and the amount you owe on your mortgage is considered your home equity.

    V. Calculate Home Equity

    Home equity loans and HELOCs leverage the equity in your home. You can determine your home equity by taking the appraised value of your home and subtracting the amount outstanding on any loans secured by your home. For example, if your home is appraised at $300,000, and you owe $200,000 on your outstanding mortgage, then you have $100,000 in home equity. Stated differently, you have 33% equity ($100,000/$300,000).

    To put a HELOC into perspective, let’s say your home is worth $200,000 and you currently owe $130,000. To figure out how much your credit limit would be, simply multiply your home’s value by 80% and then subtract your current balance. In this scenario, you could potentially get a credit limit of up to $30,000. Lower HELOC or home equity loan interest rates will keep your payments manageable.

    • 200,000 X 80% = 160,000
    • 160,000 – 130,000 = 30,000

    VI. Uses: Home Equity

    One of the biggest benefits of tapping into your home equity is that there are no restrictions on how you can use the funds. Technically, you could choose to take a vacation or buy yourself a new vehicle or RV. However, it’s highly recommended that you come up with a clear plan of action before you take on the risks that come with a secured lone of credit or second mortgage loan. Below are a few examples of how you could choose to use a HELOC or home equity loan.

    Renovate Your Home

    Completing home improvement projects that will increase the value of your home is a great way to use HELOC funds. You could also potentially use it for any pressing home repairs not covered by insurance. Renovations and remodeling projects help to further increase the value of your home. As your home value increases so does your equity.

    Consolidate Debt

    In most cases, consolidating debt is a great idea. In this case, using HELOC funds to reduce your monthly payments and lower the amount of interest you’ll pay, may actually put you ahead financially. Essentially, you’ll be replacing higher-interest debt with a lower, secured form of credit. HELOC and home equity loan interest rates are based on a number of key factors covered in an earlier section.

    Launch a Business

    Have a business idea? HELOC funds could be a way to get your business off the ground at lower costs. HELOC and home equity loan interest rates are generally lower than with a business or personal loan.

    Fund College Expenses

    If you have student loans hanging over your head, you could use a HELOC to pay them off and save yourself the high-interest rates.

    Cover Medical Procedures

    You can use a HELOC to pay off medical debt or to get that surgery that you’ve been needing but haven’t been able to afford.


    Two of the most common ways to unleash the equity you’ve built in your home is by taking out a HELOAN or a HELOC. Let’s compare these loan types. While they both allow you to borrow money against your equity, how they operate is quite a bit different.

    Home Equity Loans

    A home equity loan is a one-time, lump-sum payment you start repaying with fixed-monthly installments right away. This type of loan is commonly used to consolidate debt or to pay for large expenses like a home renovation. You pay interest on the entire approval amount when the lump-sum payment is made. This option is similar to a HELOC in that it uses the equity in your home to secure the loan. However, there’s no draw period for a HELOAN. Interest and principal payments begin immediately. Another benefit is that home equity loan interest rates are fixed rather than variable. Your payments stay the same over time. If you prefer predictability, then this may be the way to go.

    Home Equity Line of Credit (HELOC)

    A home equity line of credit, on the other hand, offers a line of credit with a draw period that is commonly 10 years. This means you can withdraw funds, as you need them, over the span of 10 years up to your credit limit. The interest rate on HELOCs is variable and applies only on the borrowed amount (not on the total amount for which you’ve been approved). For example, if you’re approved for a $200,000 line of credit, and only draw $100,000, you only pay interest on $100,000 (and not the entire $200,000 for which you were approved). This makes a HELOC appealing, but it also comes with some risks. If you don’t have a plan of action before signing on the dotted line, then it could be tempting to draw more than you need.

    VIII. How to Apply

    Below are five steps on how to apply for a home equity loan or line of credit.

    • Establish Eligibility. First and foremost, get your ducks in a row. Pull your credit score and run some numbers to get an idea of the home equity loan interest rates available to you. Gather all of your financial documents, including but not limited to pay stubs, tax returns, bank statements, and investment statements.
    • Determine Equity. Strong Home Mortgage requires at least 15% equity in your property for a HELOC or HELOAN. So, you’ll need to know how much equity you have acquired in your house. This will require an appraisal to find out how much your home is worth. You can determine your equity by taking the appraised value of your home and subtracting the amount outstanding on any loans secured by your home. For example, if you’re home is appraised at $300,000, and you owe $200,000 on your outstanding mortgage, you have $100,000 in equity. Stated differently, you have 33% equity ($100,000/$300,000).
    • Apply. When you’re ready to apply, you can schedule a call or set up an account to start an application. These options with Strong Home Mortgage are buttons at the top and bottom of this page. It’s a straightforward process, as long as you have your numbers and documents in order.
    • Read Disclosure Documents. Once approved, you’ll go over your HELOC disclosure agreement with your lender. You’ll get answers to any questions and agree with the terms of the loan.
    • Get Funded. Once closing takes place, your initial draw will be provided in as little as 24 hours.

    IX. Repayment

    A home equity loan is typically paid back in monthly, fixed- rate installments. Home equity loan interest rates are typically locked for the length of the loan. This makes budgeting much easier.

    Home equity lines of credit are different in that they have a draw period followed by a repayment period. During the draw period, you may only be required to pay interest, but you will have to repay principal and interest during the repayment period. For example, let’s say you borrowed $100,000 during your 10-year draw period and made interest payments on the balance during that time. Sounds great, right? Well, keep in mind that after the 10-year draw period, the credit line is no longer accessible, and you’ll now have to start paying interest and principal for up to another 20 years. Also, keep in mind that payback terms vary. It’s important to understand how your HELOC works.

    X. FAQs

    Below are answers to commonly-asked questions about HELOANs and HELOCs. For more information on how home equity loan interest rates are calculated, please revisit the “Key Factors” section above, or contact a loan officer to discuss.

    Is converting home equity to cash a good idea right now?

    Depending on your individual circumstances, a HELOC or a home equity loan can be a valid solution in the short term or a severe long-term risk to your financial health. It’s important to note that these options are not free money and not a catch-all, easy solution. It’s great to have a backup source of funds in case of an emergency. However, much like a credit card, it can also be tempting to spend more than your income comfortably allows. This can start a debt cycle that’s difficult to escape. If you’re considering a home equity line of credit or a home equity loan, then it’s of the utmost importance to manage your finances in a way that leads you out of debt as quickly as possible. It’s worth repeating that a HELOC or a home equity loan comes with the risk of foreclosure if you default on payments. Unlike personal debt, which is unsecured, a home equity line of credit uses your home as collateral. Therefore, if you stop making your payments, then you could lose your home. However, if you’re comfortable making the payments, and you have a lot of equity in your home, and home equity loan interest rates are good, then it can be an appealing option. Be sure to discuss your options with a loan officer to see if it’s a good fit for you.

    What is the draw period on a HELOC?

    As briefly stated above, the draw period refers to the initial period of time that a lender allows you to withdraw funds from a HELOC. During this period, you’ll be allowed to borrow from your line of credit up to your maximum credit limit while making minimum payments or possibly interest-only payments on the amount you’ve borrowed. If at the end of your draw period (typically 5-10 years) you find that you still need access to funds, your lender may allow you to refinance the HELOC. That would in turn, start a new draw period.

    What is the repayment period on a HELOC?

    After your draw period ends, you’ll have to start making monthly payments that cover both the principal and interest. This is what is referred to as the repayment period, and payments can go up exponentially if you’ve been making interest-only payments up until this point. The length of your HELOC repayment period depends on the terms of your loan. One of the most common scenarios is a 30-year HELOC, with a 10-year draw period and a 20-year repayment period.

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    ¹Additional requirements apply. Eligibility subject to final underwriting approval. This is not a commitment to loan.

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