Are you a homeowner ready to invest money in your home through remodeling projects or other home improvements and upgrades? Or, do you have an unexpectedly large expense that needs to be paid quickly? A home equity loan can be a source of funds for these types of expenses and projects.
Learn more about a home equity loan and find answers to your frequently asked questions in this blog from Fidelity Federal.
What Is a Home Equity Loan?
Homeowners can borrow money using the equity of their home as collateral when approved for a home equity loan. You’ll receive the loan as a lump sum of money that can be used for remodeling your home, paying for a new roof or furnace, or toward another large expense.
Equity is defined as the amount of money your property is currently worth minus what you still owe on your home. Home equity loans typically have fixed interest rates, which means they won’t change over the life of the loan.
It’s important to understand that your lender could foreclose on your home if you are unable to pay back the home equity loan. Talk to a financial advisor or trusted lender about your options before applying for this type of loan. Remember also to find out any other additional fees or costs you may incur with a home equity loan.
Frequently Asked Questions About Home Equity Loans
Q: What is the difference between a home equity loan and a home equity line of credit?
A home equity loan provides you with a lump sum of money, usually with a fixed interest rate. A home equity line of credit allows you to borrow or draw money multiple times from an available maximum amount, but home equity lines of credit typically have adjustable interest rates.
Q: How much of my home’s equity will a lender let me borrow?
Many lenders will allow you to borrow up to 90% of your home’s equity. A lender may adjust this amount based on the combined loan-to-value ratio, or the amount you owe on your home divided by the market value of your home. If the ratio is high, lenders may lower the amount you can borrow.
Q: How many years will I have to repay my home equity loan?
Fidelity Federal offers a 10-year amortization with no prepayment penalty.
Q: What is the length of the draw term for a home equity line of credit?
Draw terms vary by financial institution. Fidelity Federal offers 10-year draw terms with a monthly variable interest rate based on the Prime Rate, as published in the Wall Street Journal. The rate will not vary above 18% APR nor below the current Prime Rate.
Q: Can I pay down my home equity line of credit at any time without penalty and still keep it for future use?
Penalty fees vary by financial institution. Fidelity Federal will allow you to pay down your line of credit at any time without penalty and retain it for future use. However, an early termination fee of $250 will apply if you close your account within 36 months of opening.
Find Out How We’re Enhancing Products and Services at Fidelity Federal
Fidelity Federal is always looking for ways to enhance the products and services we offer, like our home equity loans, to meet the changing needs of our customers. That’s why we’re upgrading our systems this fall.
The system conversion will occur over the weekend of Oct. 14-15. Our offices and branches will be closed on Oct. 14, but ATMs will remain available throughout the weekend. Contact us to learn more about this exciting change or to get additional details on our home equity loan options.