Key Takeaways

• • • Borrowing using the equity in your home can be an economical way to finance large purchases.
    • Home equity loans suit those needing a set amount with predictable payments, whereas a Home Equity Line of Credit (HELOC) offers flexibility but comes with variable rates and higher repayment period costs.
    • Borrowing against your home equity can provide lower interest rates but risks home loss if you default, so carefully assess your financial needs and budget.

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    Thinking about borrowing? You’ve got lots of options. If you’re a homeowner, using your home’s equity¹ could be the right way to go, provided you understand all the details before signing on the dotted line.

    What’s the difference between a home equity loan and a HELOC?

    Both use the equity you have in your home as collateral for the loan. But how are they different?

    • With a home equity loan, you borrow a set dollar amount and pay the loan back in monthly payments at a fixed interest rate. Your loan payments include both principal and interest.
    • With a HELOC, you’re approved for a total dollar amount that you can access as needed. Payments vary based on how much you access from the line of credit and the adjustable interest rate.

    A home equity loan can be the right option for you:

    • When you’re borrowing for a specific purpose and know the total amount you need such as a home improvement project, higher-interest debt consolidation or for college tuition.
    • When you and your budget are better suited to regular payments over time.
    • When interest rates are rising and you want to lock in a favorable rate.

    Consider this as well:

    • If you need additional money for your project, you’ll need to apply for another loan.
    • The loan includes closing costs and (in many cases) a home appraisal.
    • If lower rates become available, you’ll need to refinance your loan to take advantage of them.
    • You can lose your home if you default.

    More about HELOC

    With a HELOC, you use the equity in your home to secure a line of credit at a variable rate, up to an approved amount. You draw on the line as you need money. Paying back the line of credit happens in two parts. During the draw period (when you can access money from your line of credit) your payments are based only on the interest that applies to the money you accessed. When the draw period ends—usually after ten years—the repayment period begins. Your monthly payments include both interest and the principal on your line of credit until it is paid in full, usually a 20-year period.

    A HELOC can be the right option for you if:

    • The security of knowing you have money available in case you need it appeals to you.
    • A big project requires funding, but you aren’t sure of the amount. A line of credit allows you to access what you need when you need it.
    • You and your budget can handle interest-only payments during the draw period and the higher payments when it’s over.

    Consider this as well:

    • Because the interest rate is variable, your payments could increase.
    • The repayment period’s higher payments could upend your budget if you haven’t planned for them.
    • A HELOC includes closing costs and (in many cases) a home appraisal.
    • You can lose your home if you default.

    A Fixed Rate Lock—the Best of Both Worlds?

    Some HELOC options, like those offered at Lake City Bank*, feature a fixed-rate lock in which you lock in a portion of your variable rate line of credit for a specified time to take advantage of lower rates that won’t fluctuate. The remaining portion of your HELOC is still available at the variable rate.

    What about Equity? And How Much Can I Borrow?

    The equity you have in your home is the amount you actually own, or your home’s value minus the amount you still owe on your mortgage. Equity accrues from your down payment when you purchased your house, the principal part of the mortgage payments you’ve made, and the market increase of your home’s value. For example, if your house is worth $250,000 and you owe $150,000 on your mortgage, you have $100,000 in equity. You can get a very rough idea of your home’s value by looking it up on real estate sites like Zillow®, Redfin or Trulia. For an accurate valuation, you’ll need an appraisal.

    Generally, you can borrow a maximum of 85% of the value of your home. Continuing with the example above, you could borrow up to $62,500. Of course, you’ll need credit approval based on several factors.

    Is a Home Equity Loan or Line of Credit Right for Me?

    The answer is maybe—provided you consider all the aspects of this type of borrowing.

    Using an Equity Line or Loan
    Advantages	Disadvantages
    The loan is secured by your home equity	You could lose your house if you default on the loan
    Lower interest rate	HELOC variable rates could result in your payment becoming unaffordable
    You can borrow more as your home’s value increases	Up and down fluctuations in your home’s value could result in you owing more than your house is worth

    • A home equity loan or HELOC can be a great way to borrow, especially considering its relatively low interest rate. Understanding the benefits is a great first step, but be sure you consider the possible risks as well in case your financial situation changes unexpectedly.We can help you finance your next big purchase. For more information, or to apply for a home equity loan or HELOC, drop in to one of our branch locations or call our One Call Center at (888) 522-2265 to get started.

     

    • ¹Not available for mobile homes
      *The five year Fixed Rate Lock requires a Lake City Bank Home Equity line of credit, credit approval and an 85% or less loan-to-value ratio (90% loan-to-value if first mortgage is with Lake City Bank). Rates available for Fixed Rate Locks are subject to change. Higher APR applies without an automatic payment deduction from a Lake City Bank checking or savings account. Minimum loan amount is $5,000 with a cumulative maximum of $250,000. A maximum of three Fixed Rate Locks can be active at any given time. You must carry insurance on the property that secures your Home Equity line of credit. Contact Lake City Bank for current rate and other term options. Institution ID# 431669.