Equity Loan or Equity Line: Which is Better for You?
BY LISA SCONTRAS
Property values on Oahu have gone up in four of the last five years, according to the Honolulu Board of Realtors, and it’s likely the equity in your home has as well.
Home equity is determined by taking the appraised value of your property, less any amount you presently owe. For example, if your home is appraised at $500,000 and you owe $200,000, then you have $300,000 in equity.
“Home equity is untapped borrowing power,” according to Derek Wong, Vice President of Credit Products at First Hawaiian Bank. “As your property value increases, so does your borrowing power. As long as your income supports your ability to borrow, tapping the equity in your home can be a great resource.”
There are two ways to harness your home’s equity: a onetime equity loan or an equity line of credit.
“At First Hawaiian Bank, the primary difference is that the loan has a fixed loan amount, term and payment versus the line, which is an open-ended hybrid product that can be used continuously as you pay down your outstanding balance. The equity line also has a lock feature that works like a loan,” said Wong.
If you have circumstances where you are unsure of exactly how much money you may need and/or require flexibility to draw balances over a period of time, a line of credit might be best. However, if you know you only need a one-time sum of money, with predictable and fixed payments, the loan may be a better choice for you.
“Choosing between an equity loan or line depends on your situation,” added Wong. “For example, if you know that all you want is to buy a new car that costs a specific amount, you may opt for an equity loan because you have a specific purchase for a finite amount. In another case, someone may want to refurbish their bathroom and kitchen or help pay for their child’s college tuition. In this situation, expenses may be more unpredictable and be spread over a longer period, so an equity line might be more beneficial.”
Either way, the financial benefits to using your equity generally far outweigh other methods of obtaining unsecured loans or credit cards for the following reasons:
• The interest rate you pay will likely be lower than personal loans or credit cards because having equity collateral makes it less risky for lenders.
• Interest paid on equity loans and lines is normally tax deductible, further discounting the cost of the loan, but be sure to consult with your tax adviser to see how this applies to your specific situation.
• Equity loans and lines often enable higher balance limits than personal loans and credit cards because they are secured by your home.
Need help determining which product is best for you and your circumstance? First Hawaiian Bank makes it easy to sort through all the available options by assigning you a personal banker who will help you confidently decide which type of product makes the most sense for you.
“Your First Hawaiian Bank personal banker will not only help you determine which equity product best suits your needs, they will walk you through the application process,” said Wong.
Friendly, local service is another way customers at First Hawaiian Bank benefit.
“Local servicing ranks high on our customers’ list of what they like best about dealing with First Hawaiian Bank,” he added. “We do business in our customers’ time zone, which can make all the difference when you want to talk to someone with a question you may have.”