Tag Archives: home equity loan

Home Equity : What It Is and Why It Matters

It is often said that home ownership builds wealth. So, what is home equity, and how can it enhance your net worth?

What is home equity?

Home equity is the current market value of your home, minus what you owe. You’re looking for a positive number. Any gain comes from:

  • Paying down the principal balance on your loan.
  • An increase in market value over time.

How does home equity work?

Building home equity is a bit like investing in a long-term instrument, like bonds. Your money is, for the most part, locked up and not spendable.

There are some ways to tap it, but wealth is created over years as your share of “free and clear” ownership of the house increases.

It seems simple enough, but home equity is not guaranteed. Just ask any homeowner who went through the last housing bust. That’s when home equity fell sharply for many homeowners — and, in some cases, completely disappeared.

As a rule, building home equity is a slow climb, at best. U.S. residential year-over-year home price appreciation averaged 1.89% from 1997 to 2017, adjusted for inflation, according to CoreLogic, the Bureau of Labor Statistics, and the Urban Institute.

However, behind that average are some major year-over-year price swings during the same period, ranging from a gain of 12.6% to a drop of 18.1%, according to the Urban Institute.

When it comes to short-term home appreciation, sometimes it’s more of a bungee jump than a climb.

How do you find out how much equity is in your home?

home equity calculator can give you an idea of what your home is worth and how much equity you may have, if you’re thinking about selling your home or borrowing a chunk of your equity.

An appraisal will really nail down the value of your house.

Why is home equity important?

Home equity can be a long-term strategy for building wealth.

Mortgage payments reduce what you owe while your home gains value, so paying on a house has been called “a forced savings account.”

This is unlike virtually every other asset purchased with a loan, such as vehicles, which lose value while you pay them off.

A growing number of U.S. homeowners are amassing “impressive stockpiles” of home equity wealth, according to Daren Blomquist, senior vice president at Attom Data Solutions.

At the end of the second quarter of 2017, over 14 million U.S. properties were considered “equity rich” — meaning the debt on the property was 50% or less of the home’s current market value.

That’s about 24% of all owner-occupied homes with a mortgage.

Home equity takes time to build

Another nutrient helping to grow home equity wealth is time. Homeowners who stay in their homes longer are more likely to accrue equity.

In the second quarter of 2017, people selling their homes had lived there an average of more than eight years. That was the longest ownership period since Attom began tracking homeownership tenure in 2000. Before the recession, people were staying in their homes an average of about four and a quarter years, Attom data show.

“That’s a paradigm shift — a more conservative approach to homeownership and building wealth through homeownership,” Blomquist says.

Just 10% of homes owned for less than one year are considered equity rich, according to ATTOM.

You don’t have to sell to tap the profit inside your home. Instead, you can borrow against that value with a home equity loan or line of credit. A home equity loan will provide you a lump sum; a HELOC allows you to draw on the available balance as you wish.

Home equity is not a get-rich-quick scheme

Building home equity is definitely a long-term proposition. Blomquist says wise words from one of his relatives may state it best.

“My wife’s great-grandfather — who bought property in Southern California a long time ago — his advice was, ‘You take care of a piece of real estate for 20 years, it’ll take care of you forever.’”

From our friends at Nerd Wallet


Not impressed with your kitchen or bathroom? Dream big with your space! Tackle your next home project with our Home Equity Special — rates as low as 5.21% APR*! Connect with our Loan Specialists today at 503-275-0300 Option 2 or apply online. We can’t wait to help make your dreams come true!

 

*Rate quoted valid for second lien loans only. Available in Oregon, Washington & Idaho. Minimum loan amount is $25,000. Maximum loan amount is $100,000. Maximum loan-to-value is 80%. Rate will vary depending on term, loan-to-value and credit qualifications. 10-year maximum term. Payments: On a $50,000 loan with a 120-month term at 4.99% interest rate (5.21% APR), your monthly payment would be approximately $531.21 or $10.64 per $1,000 financed. Payment approximation does not include taxes or insurance. Offer ends 5/31/2019

Homebuying 101: Refinancing – What to Consider

Throughout the next several weeks we’ll be posting articles and info on various aspects of the home buying process. Topics will cover everything from saving for a down payment, to refinancing, to purchasing investment properties, and more. We encourage you to connect with us on any questions you might have, and to share this information with friends and family.

Summer is just around the corner and it’s prime home-buying time. However, not everyone is in the market to buy. If you’re happy with your current home, you can still take advantage of some of the lowest mortgage rates we’ve seen by refinancing your mortgage. There are three main reasons to refinance your home: to save money, to borrow cash against your equity, or to do a combination of the two.

 

Refinance to Save

If you’re trying to save money by reducing your monthly payments, you need to divide cost of getting the loan by the monthly payment savings. This will tell you how many months it will take for you to “break even” and start saving money. If you plan on staying in the home past the time frame shown, you should refinance. Here’s a good rule to follow:

If the “break even” point is…

Under 3 years: Good time to refinance

3 to 5 years: Consider options carefully

5 years or more: Best to wait and refinance later

If your overall goal is to refinance to a shorter term loan (for instance going from 30 to a 15-year mortgage) to pay your house off faster, be sure the rate is dropping enough to recover the costs as if the refinance was a 30-year loan. If it doesn’t, you should just start pre-paying principle on your current loan at the 15-year payment amount instead of refinancing and paying costs.

 

Refinance for Cash

You can get cash for any purpose you want: home improvements, pay off debts, family needs – there are no restrictions based upon how the cash will be used. The common 30-year fixed first mortgage allows you to borrow up to 80% of the appraised value for the refinance loan amount.

The two other ways people choose to borrow cash are with a Home Equity Line of Credit (HELOC) or a Home Equity Loan.

 

Home Equity Line of Credit (HELOC)

A HELOC is a revolving line of credit that allows borrowers to obtain a predetermined amount of money drawn against the equity of their home. (Think of it as a “credit card” secured by a mortgage or deed of trust on the property). Borrowers will be approved for a specific amount of credit (their credit limit), which is the maximum amount of money they can borrow at one time. The credit limit is normally set by the lender based on a percentage of the home’s appraised value and subtracting that from the balance still owed on the first mortgage. Additional factors will also be used to determine a credit limit such as: income, debts, credit history and ability to make payments. HELOC funds can be accessed by special checks or a credit card.

Many HELOC plans have fixed periods known as “draw” and “repayment” periods – which can vary in length. During the draw period the borrower is able to borrow money and may have smaller monthly payments or interest-only payments. Some plans call for payment in full by the end of the draw period; other plans that use a repayment period ask that the money be paid over that fixed amount of time, or may have a repayment period and balloon payment at the end.

A HELOC is good for borrowers who desire a lower up-front rate and access to money at unpredictable times. Borrowers will only need to pay back the amount of money that is actually used from the line of credit and they only face credit reviews on a 1 to 3 year basis. Competition among lenders has encouraged the growth of introductory “teaser” rates and other incentives.

 

Home Equity Loan

A Home Equity Loan is an example of a second mortgage. Borrowers receive a check for the entire loan amount and will need to make payments on the loan until it’s paid off.

Home Equity Loans are a good choice for borrowers who need a specific amount of money and payment stability. These are fixed rate loans which allow borrowers to lock-in the interest rate for the entire life of the loan. Unlike a HELOC, there are no annual (or “maintenance”) fees associated with this type of loan.

Note: The combined mortgage along with either the HELOC or Home Equity Loan typically cannot exceed 80% of the current value of the home. 

 

Your Choice Home Equity Options

If a Home Equity Loan or Line of Credit is the right option for you, USACU has a special promotion running during the month of May: Your Choice Home Equity Options. Click here for more info or to apply (limited time only).

 

Next Steps…

For more detailed information about the refinancing process and different financing options, please contact an experienced mortgage loan officer, like Steven Raymond, VP of Residential Lending at USACU. Steven can help you evaluate your current financial situation, your long term goals and help you make the best decision possible.

For more info on our Home Equity Loans or Lines of Credit, including our ‘Your Choice Home Equity‘ promotion, please contact Lending Services (503.275.0300, opt. 2).

Questions?

Steven Raymond, VP or Residential Lending at USAgencies Credit Union, has over 30 years of experience in the mortgage industry. Steven’s seen it all, as far as mortgages go. If you have questions—about refinancing, getting pre-approved, or anything else mortgage-related—talk to Steven!

Steven Raymond 
Vice President of Residential Lending, NMLS#: 234025
Direct: (503) 275-0329
Toll-free: (800) 452-0915 x329
Email: sraymond@usacu.org

Ready to go?
Apply for a mortgage online now.

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USAgencies Credit Union
NMLS#: 441193

 

 

6 Tips for Summer Energy Savings

The summer months bring sunshine, warm nights, and backyard fun + higher energy bills. Cut your costs with a few simple changes around your home.

  1. REPLACE YOUR OUTDATED AIR CONDITIONING UNIT. If you live in a home that’s over 20 years old, it may be time to consider purchasing a new, more energy efficient unit.
  2. ALTERNATIVE METHODS OF COOKING. Consider using your microwave or grilling outdoors. If you do need to use your oven, consider baking in the morning hours rather than in the heat of the day.
  3. AUTOMATE YOUR THERMOSTAT. Install a programmable thermostat to keep your home warmer during the day when you’re away at work.
  4. BLOCK OUT THE HOT SUN. During times of the day when the sun is at its hottest, pull your window treatments closed to block out warm rays.
  5. GIVE YOUR AIR CONDITIONING A BREAK. Cool your space down for less money with the use of oscillating room and ceiling fans.
  6. TAKE COOLER, SHORTER SHOWERS. Decrease the duration of showers to save on your hot water usage and consider installing a tankless water heater.

Need help with making some of these energy improvements? Connect with USAgencies for details on our Home Equity LoansLOANS@USACU.ORG | (503) 275-0300 option 2.