What is a home equity and what are my options?

11/17/2016 Michelle Graven

Do you imagine your home with a new porch? How about a finished basement? Or are you looking to finally update the kitchen? High costs might make your big remodel seem like a dream, but we can help you make that dream a reality using your home equity.


What can I use my home equity for?

Some of the most common reasons our customers here at Marine Bank use a home equity loan is for home improvements, college tuition costs or debt consolidation.

Some other common ways to use your home equity include large expenses due to major life events such as a wedding, a new car or unexpected medical expenses.


What are my options?

Marine Bank offers two types of financing options for home equity loans. The options are either a home equity loan or a home equity line of credit. Both can be used for home improvements but each loan works a little differently.

A home equity line of credit essentially works like a credit card. You are approved for a certain limit, and charged interest for only the amount that you use. You draw funds when you need them and pay it back in smaller payments similar to a credit card. Home equity lines of credit are tax deductible and have low variable rates.

A home equity loan is more like a car loan.  It’s a fixed rate and has set monthly payments.  With these loans you have 10-15 years to pay them back and you get the entire loan up front.  These loans are easier to budget and are usually used for bigger projects.


How much can I borrow?

Your home equity is the difference between the appraised value of your home (how much your house would sell for) and your current mortgage balance.

Your credit score determines the rates. Home owners with better scores get the best rates and terms. For example, A-rating credit scores are consumers who have no late payments or maxed credit cards for at least 12 months.  Having a couple late payments or overdrawn credit cards probably won’t completely knock you out of the game, but it’s likely you will have a higher interest rate.

Before you apply to use your home equity, know your estimated costs for your improvement. This will help your lender determine what kind of loan will work best for you. In your budget, add 10% more if you are planning to use a contractor and add 20-30% if you are doing it yourself.  You don’t want to forget about permit fees and equipment rentals along with any inevitable surprise costs.

When choosing which option to go with, it’s important to think about what’s best for you.  Does the amount of equity in your home cover the projects you are doing?  Check out the total fees and cost involved with either loan type and determine whether or not you can afford it along with your overall debt amount.  Visit us and we can help you decide what will be best for you.

Written By: Michelle Graven