Home Equity Loans
So you have a successful home mortgage loan, but down the line you need money for making home improvements or for other major purchases or expenses. A loan secured by the equity you have in your home can provide the means for acquiring those much-needed funds.
The more equity you have in your home, the more borrowing potential you have. If you've been paying down the principal balance on your mortgage or if your home has appreciated in value, you may be able to access a portion of that accumulated equity. A home equity loan offers you a one-time lump sum payout. In some cases, a home equity loan is a type of second mortgage.
Equity Loan Features
Home equity loans offer a fixed or adjustable interest rate.
The interest paid on a home equity loan is usually tax deductible, a potential savings. Check with your tax advisor for confirmation.
Most lenders allow you to borrow up to 80% of the value of your home, minus the amount owed.
Your lender will consider all of the same factors they did when you first obtained your home mortgage:
- Credit score and history
- Employment history
- Monthly income
- Monthly debts
Some features will vary among lenders, requiring careful comparison. Potential differences may include the following items.
Minimum Loan Amount
The minimum amount you are required to borrow by the lender
Such as application and/or appraisal fees
Automatic Payment Discount
Discounted rate if automatic payments come from an existing account
Is A Home Equity Loan Right for You?
If you have an immediate expense and want to receive funds up-front, a home equity loan could be a great choice for you. Plus, if the interest on your loan will be tax deductible, that offers more savings.
Generally, the closing costs associated with a home equity loan are less than they are for a refinance. This is one of many factors your CNB&T mortgage officer will help you weigh in your decision.
Your house is the collateral for your home equity loan, so it's important to avoid putting your home at risk. Borrow only what you can comfortably afford, and maintain a good credit rating as an investment in your future.
Need some feedback as you consider what's best for you? Your CNB&T mortgage professional awaits! Texas banking regulators have some special rules that apply to Home Equity loans and we vow to keep our customers in the loop.
Quantifying Home Equity
Your lender will consider your Loan-to-Value ratio (LTV) in determining whether or not to approve your application. In Texas, the maximum LTV is 80%. This includes your current mortgage.
Current Loan Balance / Current Appraised Value = Ratio (%)
- Your house appraises for $250,000, so you can borrow up to $200,000 (80% of $250,000)
- You currently owe $120,000
- The maximum home equity loan would be $80,000 ($200,000 - $120,000 = $80,000)
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