Curious about using your home's equity? A home equity loan or a home equity line of credit (HELOC) are two options that can help you fund home renovations, consolidate debt, and reach other financial goals. Let's explore these options and help you determine which might be the best fit for your needs.
What is Home Equity?
Home equity is your ownership stake in your home. It grows as you pay down your mortgage and your home's value increases.
How is it calculated?
Your home’s equity is calculated by subtracting your mortgage balance from your home’s value (Home Value - Mortgage Balance = Home Equity). While many financial institutions allow you to borrow up to 80% of your home’s value, commonly referred to as a loan-to-value ratio, with MSGCU, you can borrow up to 90%. Here’s an example of how MSGCU calculates a home equity loan:
You can estimate your home’s equity with our financial calculator.
Benefits of using your home’s equity:
- Lower interest rates than most credit cards or personal loans.
- Potential tax savings on the interest you pay (consult your tax advisor).
- No prepayment penalty for new home equity loans and HELOCs from MSGCU.
What is a home equity loan?
A home equity loan is a loan that’s borrowed against your home’s equity. Your home’s equity is calculated as the difference between the current market value of the home and the outstanding balance on the mortgage.
Key features of home equity loans:
- Lump sum disbursement. Borrowers receive the full loan amount all at once.
- Fixed interest rate. Most home equity loans come with a fixed interest rate. At MSGCU, you can get a home equity rate as low as 6.49% APR* with no application fee.
- Set repayment terms. The loan is repaid over a predetermined period. MSGCU term loans can be repaid up to 15 years, with other financial institutions typically ranging from five to 15 years.
- Predictable payments. Borrowers know exactly how much they’ll pay throughout the life of the loan, making budgeting for the loan easy.
What is a Home Equity Line of Credit?
A home equity line of credit, also known as a HELOC, gives homeowners a revolving line of credit based on their home equity. You can draw funds as needed up to a set limit during the draw period. Afterwards, you enter the repayment period to pay back the borrowed amount plus interest. To help keep your initial payments lower during the draw period, you often only pay the interest on the money you've actually borrowed.
Key features of HELOCs:
- Revolving credit. Homeowners have access to a line of credit that can be drawn upon repeatedly during the “draw period,” which tends to last five to 10 years.
- Variable interest rate. HELOCs often have variable rates, which means the interest rate can change based on market conditions. Because of this, monthly payments can fluctuate throughout the HELOC term.
- Flexible repayment. Borrowers have the flexibility to pay off the balance and then re-borrow funds during the draw period.
- Interest-only payments initially. Many HELOCs allow interest-only payments during the draw period, making initial payments lower.
How are home equity loans and HELOCs used?
Although they are structured differently, HELOCs and home equity loans are generally used for similar purposes. While home renovation is usually the first thing that comes to mind, they can be used for other needs, such as debt consolidation, emergency expenses, and large purchases. Check out all the different ways you can use a home equity or HELOC loan in our blog post.
Key differences between HELOCs and home equity loans
Understanding the differences between these two products is crucial for deciding which is right for you.
1. Funding payout
- Home equity loans provide funds as a one-time lump sum. This makes them a perfect choice when you know the exact amount you need to borrow for a specific purpose. Examples include funding a major home renovation with a fixed contractor quote or consolidating high-interest debt into one loan.
- HELOCs offer a revolving line of credit that can be drawn as needed. This makes them ideal for homeowners who don’t know exactly how much they need to borrow. For instance, they are useful for funding home renovation projects completed in stages or paying for education costs over several semesters.
2. Interest rate structure:
- Home equity loans come with a fixed interest rate, which means there are no surprises throughout the life of the loan. This can mean significant savings for the borrower if interest rates rise.
- HELOCs have a variable interest rate, which can fluctuate with market conditions. This can mean having a lower monthly payment at times, and it can also lead to higher payments at other times.
3. Repayment terms:
- Home equity loans have a fixed repayment period with a set monthly payment.
- HELOCs feature flexible payment terms during the draw period. However, payments may vary once principal repayments begin.
Whichever home equity product you decide on, at MSGCU, you’re assured a market-leading rate, no application fee, and personalized guidance so you can pick the right loan for your needs. Call, video bank, make an appointment, or stop by one of our 22 branches to learn more.
*Annual Percentage Rate (APR) may be higher, based on term of loan, credit score, collateral, and loan to value. Ask an MSGCU Representative for details. Example: A loan amount of $15,000 at 60 months with up to 80% Loan-to-Value and a rate as low as 6.25% (second lien) would be approximately $291.76.
Category: Finance
« Return to "Blog"
You May Also Like
Hit the water, not your wallet: 8 simple steps to save for a boat
Ready to make waves without sinking your budget? Here are eight simple steps to save up for the boat of your dreams.
Maximize your tax refund with these 9 ideas
It’s tax refund time. Before you decide to splurge it all, consider one of these 9 alternative ways to get the most out of your refund.
You don’t need luck with a Certificate of Deposit from MSGCU
CDs are a great savings opportunity to consider to help your money grow. Read on to learn more about what they are and how they work.
Getting ready to file your taxes
Here are 8 tips that will ensure you’re ready to file your taxes with ease.
Consolidate and simplify: your guide to debt consolidation
If you feel buried under a mountain of debt, you might consider consolidating debt to get out from under it all. Read on to learn more about debt consolidation options and if it’s right for you.
Don’t fumble your finances: Understanding online sportsbooks
Sportsbook apps seem like a fun and easy way to win money. Like any form of gambling, they run the risk of monetary losses that can seriously impact your finances.
9 Ways to Save On Valentine’s Day
Looking for ways to celebrate your significant other that don’t break the bank? We’ve got you covered with 9 budget-friendly Valentine's Day ideas.
The Post-Holiday Budget Recovery Guide
The holidays are in the rearview, and if you’ve gone over budget with your spending, it’s time to deal with the aftermath. Here’s how you can get your budget back on track for the new year and avoid future budget-busting.
Make a New Year’s resolution to be fiscally fit
Ready or not, the new year is here. Do you feel financially ready for it? Read on to learn some tips to help start, and keep, financial resolutions.
I didn’t know I could use a home equity loan for that!
While most associate home equity loans with financing home improvements, there are many more uses for these handy loans to help you reach your financial goals.
Update or vacate? Making the best decision for your home.
With today’s hot housing market, is it better to update the home you’re in or move? Read on to learn more about the opportunities and challenges for each decision.
Anatomy of a car payment
Learn about the components of your car payment and the additional costs of car ownership.
How to shape up your finances before the holidays
You can make holiday shopping merrier by making these money moves now.
Know the deal for buying used wheels
Thinking about purchasing a used car? Before you sign on the dotted line, check out our helpful tips to ensure you’re getting the right ride and the right deal for you.
The Anatomy of a Mortgage Payment
Learn about the components of your mortgage payment, including how it's calculated and ways to effectively manage your payments.
EMDs and ARMs and ARPs, oh my! MSGCU breaks down common mortgage terms.
Mortgage terminology can be confusing, but we can help make understanding them easier. Read on to learn the ABCs (and EMDs, LTVs, and APRs) of mortgage language.
6 tips for a hassle-free mortgage process
Make your homebuying journey easier by starting with the right mortgage lender. Follow these tips to find one and enjoy a smooth homebuying experience.
Financing your vacation home
You’ve decided you’re ready to buy your dream vacation home, now what? In this article we’ll cover first home vs second home purchases, financing options, and more.
8 true costs of buying a vacation home
Considering a second home or vacation home? Here are eight key costs to consider.
Busting the 20% down myth
It’s common to think you need to save 20 percent of a home’s value for a down payment before home ownership can be considered. Good news: it’s a myth. Read on for more good news.
Road Trip for Less
Need a vacation, but don’t want to break the bank? A road trip might be the right blend of adventure and low cost you’re looking for.
5 reasons why you shouldn’t put off getting a loan
Even though rates have gone up, getting a loan can still be the right move for you depending on your situation. Here are five reasons why.
Put your home’s equity to work for you this summer.
The hot real estate market has led to a boom in popularity for home equity loans with many Michiganders choosing to stay in their home purchased or refinanced when mortgage rates were historically low. Read on to learn what a home equity loan is, what you can use it for, and see if it’s right for you.
Saving at the vet: how to keep your furry friends from breaking the bank
If you’re an animal lover, you know that vet bills can be overwhelming. Learn some great ways to lower your costs while still giving your furry friend the best possible care!
First timers’ guide: The three stages of the homebuying process
The process of buying a first home can seem overwhelming. With a step-by-step approach, the experience becomes less daunting – and a lot more fun.
The Heart of Your Finances: Your Checking Account
Maybe you’re considering opening a checking account or aren’t even sure if you really need one. The experts at MSGCU say you do and here’s why.
Don’t go mad this March over gambling. Understand the risks of online sportsbooks.
Sportsbook apps seem like a fun and easy way to win money. Like any form of gambling, they run the risk of monetary losses that can seriously impact your finances.
Four Steps to Go From Renting to Buying
Tired of renting your home, but not sure you’re ready to buy? Here’s how to make the best decision and go from renter to buyer when you’re confident it’s time to purchase a home.
New Year Financial Resolutions
The New Year brings new financial goals, yet many of us feel overwhelmed when we start thinking about what we might tackle as a resolution. Here are 6 tips to get you started from the experts at MSGCU.
5 Ways to Increase Your Credit Score
Your credit score is vital to your financial health. An excellent credit score can open the door to large loans and better interest rates, as well as employment opportunities and more.
Discover the best ways to build and maintain an excellent credit score.
Payday Loans: A Serious Problem with A Smart Solution
Payday loans can seem like an easy way out of a financial jam, until you get caught in the spiral of fees. Fortunately, MSGCU has you covered when unexpected needs arise and you’re out of funds until the next pay day.
Mortgage options to help you unlock the door of your dream home.
Not all mortgages are the same. Rates, product offerings, and other benefits add up to your perfect mortgage package.
9 tips to follow on National Financial Awareness Day
MSGCU helps you get the most out of your money every day.
Is it time to choose a new bank?
Read on for 4 signs it’s time to leave a bank, and 4 questions to ask a new one.
Why CDs are a Great Investment for Younger Savers
For millennial and Gen-Z savers, Certificates of Deposit offer the best of both worlds: high returns & no risk.
A Blueprint for Managing Credit Card Debt
Paying down high-interest rate credit card debt can feel overwhelming sometimes. Check out these tips to help you effectively knock out your debt.
How To Make Certificates of Deposit Work for You and Your Savings Goals
Is building your savings account a priority in your financial goals? Learn more about your options and determine the right choice for you when it comes to savings accounts and certificates of deposit.
Beyond the piggy bank: 5 ideas for helping kids achieve more financial independence.
Teaching kids about money management can seem daunting, but it doesn’t have to be complicated. Read on for five simple money truths to help prepare your kids for a successful financial future.
What to do before getting your first loan.
You’re considering a big purchase, and you’re going to need a loan to make it happen. Before you take the plunge, take these steps to make sure you’re ready for your first loan.
Turn renting into owning with our step-by-step guide
Tired of renting, and feel the homebuying process can be overwhelming? See why now is the perfect time to become a homeowner with our easy step-by-step homebuying guide.
Help your college kid make smarter, safer money choices, right from the start.
When your child is ready to head off to college, here are 7 tips from MSGCU you can use to help them build financial freedom and make smarter, safer money choices.
Going to college? Take MSGCU with you.
Learn all the convenient ways you can bank with us, no matter which campus you’re headed for.
Six smart financial moves to make when you get your first “real” job.
Your hard work has paid off and you’ve landed your first “real” job. Congratulations! As you embark on your brilliant career, you can make your future even brighter by making these smart financial moves.
5 steps to RV- and boat-buying for an unforgettable spring and summer.
Ready to spring into Michigan’s warm weather activities with a new or used boat, RV or ATV? Check out MSGCU’s 5 steps to RV, boat and powersports buying.
Applying for a new mortgage? We have tips to save you time.
Whether you are a first-time home buyer or reentering the home buying or refinancing market, the application process might seem daunting. Before you start emptying your filing cabinet for documents, see how you can streamline the application process.
8 ways to get your teen ready for financial independence.
Let go, hang on, let go, hang on, let go … help with getting your teenager ready for more financial independence is here! Read on for wisdom from the financial champions at MSGCU.
5 ways to save money on a new or used car
With a few smart financial moves, you can save a lot of money on your current vehicle or a new car purchase.
Spotted: hidden fees in rates. Here’s what to look for to get the best deal.
A good rate can turn bad quickly when fees and points are included. Read on for a simple tip to spot the best deal when shopping for a mortgage.
Your credit score: What it is and how you can make it better.
What is a credit score, and how can you make sure yours will help, not hurt you? Read on to get answers to these questions and more. We’ll help you get off on the right foot with your credit history.
Spring clean your finances
Whether you are looking for ways to save or spend wisely this spring, the team at MSGCU has options and advice for you.
Two truths and a lie about homebuying success
As the winter turns to spring, many turn to shopping for a new home. An MSGCU mortgage expert describes two truths and a lie about being ready for the spring shopping season.
How to open a bank account at MSGCU
Ready to manage your own money? Read this blog to learn how to open an MSGCU bank account and make the most of your membership.
Your 2022 home goals: Tips for financing home improvements or a new home
A common 2022 goal is home improvement, either with renovations or a move. Here are some tips on financing your goals for the new year.
Start ahead, stay ahead: 7 must-haves for a better first bank account
Think you’re ready for your first bank account? Read on for 7 must-haves when looking for your financial partner.
Is it time to leave your bank?
Learn to recognize the signs that it is time to move on from your current bank and choose the next one. Plus, three key questions to ask when choosing a new bank.
8 questions to ask before taking out an auto loan
Whether you’re buying or refinancing, choosing an auto lender is a big decision. Take your time to find one who will work with you and your financial goals; in other words, do your homework. Read on for 8 key questions to ask lenders before you get (or refinance) an auto loan.
Check interest rates today, save tomorrow.
Could your interest rates be lower or are you paying too much in interest rates? Read on to find out more and what to look for.
10 tips to follow on National Financial Awareness Day.
Financial Awareness Day was August 14. Let MSGCU help you get the most from your money with these tips every day.
8 myths of modern mortgages every homebuyer should know.
Whether you’ve done this before or you’re a first-time homebuyer, getting current about best practices for finding and financing a new home is always a good idea.
5 financial habits to start today
Try these five tips, or start with just one, to bring your financial wellbeing to the next level.
How to win at debt
An important consideration when taking out a loan is whether it might be good debt or bad debt. Not all credit is bad, read on to learn the difference.
Starting your emergency savings fund
It’s never too late to start your emergency fund. Read on for easy tips you can do today to start saving.
Debit or credit: What’s the difference?
Swiping and signing to make a purchase is so easy these days, but do you grab your debit card or credit card? Does it matter? Read on for answers.
Smash your credit card debt
While not all debt is bad, too much can limit the amount of money you can put toward your life goals. Read on for three easy steps so you can use credit to your benefit versus being overwhelmed with payments you can’t afford.
Small savings = big rewards!
Saving money doesn’t have to be daunting. Read on for quick and fun ways to save from MSGCU’s experts.
Study, work, save: How to win at college.
Save money in college without having to give up everything you love with these tips from Michigan Schools and Government Credit Union.
MSGCU is on the front line of your finances
MSGCU has always been here for its members, even during COVID-19. Learn how we helped members financially impacted by COVID-19.
See you at the drive-thru!
Did you know you can complete the same actions through an MSGCU drive-thru that you can in a branch? The drive-thru is a safe and easy way to complete transactions, and a friendly MSGCU team member is always there to help.
How to make your stimulus check work for you