What To Know When Shopping For A Home Equity Loan Or Line Of Credit
Skyrocketing college and private school tuition and expenses rank among the top reasons why homeowners borrow on their home’s equity. Other reasons include a remodeling project, buying a new car, or putting aside some money for an emergency fund. And according to First Hawaiian Bank, there are many ways to draw on the financial power of your home’s equity and put it to good use.
There are two basic types of home equity products: a line of credit or a loan for a pre-determined amount, both of which are secured by your home as collateral. Both equity products offer the ability to pay for big-ticket items at a lower interest rate, which mean lower monthly payments. And what’s more the interest is tax-deductible in most cases. (Please consult your tax advisor.)
“Your reason for borrowing will help you determine which product is right for you,” says Derek Wong, Vice President of Retail Credit Products at First Hawaiian Bank. “If it is for a one-time purchase, like buying a car, and you don’t foresee needing to borrow in the near future,
then an equity loan could be suitable. An equity line of credit is more versatile than a loan because you can access your line at any time, simply by writing a check.
“For instance, if you were installing a photovoltaic system into your home, you would draw half the system cost to start, then draw the remaining balance at the completion of the installation.”
One great advantage of a credit line is that you make payments only once you’ve drawn on the funds. If you are approved for a $100,000 home equity line, but only use $25,000 to start, you only pay interest on the $25,000. This kind of financial flexibility is perfect for multiple needs or projects where the exact cost might not be apparent. Either way, the homeowner can take comfort in knowing funds will be available when needed.
With First Hawaiian’s Equity FirstLine Plus, the borrower also has the ability to lock in a fixed rate (up to five fixed rate locks up to 10 years) – which protects you from rising interest rates.
When shopping for an equity loan or equity line of credit, pay attention to introductory very short-term “teaser” rates.
These can work in your favor, but not in all cases. This product can work to your advantage, but it really depends on your circumstances. So it’s really important to determine what promo rate will work best based on the size and length of the project or expense you have in mind.
“A one-year promotional rate is mainly intended for people who are borrowing smaller amounts and know they can pay off the entire balance quickly,” says Wong. “First Hawaiian Bank also offers a three-year promotional rate, which is popular, because it gives borrowers more flexibility with a longer promotional rate before it adjusts to a higher interest rate.”
With the rate lock option, borrowers can convert all of, or any portion of the balance to a fixed loan, locking in an interest rate and monthly payments.
“We also offer fixed rate locks that can be amortized for up to 20 years, so your monthly payments can be even lower,” Wong adds. “Not only does this provide flexibility, but it allows borrowers to set their fixed rate with consistent monthly payments.”
The interest rates on an Equity FirstLine Plus are lower than some student loans
and it is easy to apply – there is no paperwork required – and you can get your money in as little as three days after closing. The Equity FirstLine Plus product is convenient as well, with free checks you can write whenever funds are needed.
First Hawaiian Bank offers a home equity line of credit on on both fee simple and leasehold properties, as well as owner-occupied homes, rental or investment homes, vacation homes, condominiums or single-family homes – provided that adequate property insurance is in place.
The interest rates on home equity products are much lower than credit cards or other personal loans since it is secured by real property.
“We’ve seen a great response to our two-year fixed home equity line of credit,” says Wong. “It allows for flexibility and stability all wrapped into one. Whether improving your home, paying for tuition or paying off other higher interest rate loans or credit cards, equity loans and lines make sense – and don’t forget about the potential tax deductibility, which may make an already low rate even more financially beneficial.”
Which equity loan or line is best for you? First, determine your needs. Do you need to borrow a large amount? Do you want to make set payments? Do you have property to leverage your credit? Do you want “rainy day” money just in case?
To find out what is best for you and to receive a customized analysis of the financing options that best suit your needs, talk to a First Hawaiian Personal Banker today.
The opinions, statements and views contained in this article are those of the author, and do not necessarily represent the views of First Hawaiian Bank or its management.[notdef] First Hawaiian Bank does not warrant that the information herein is accurate, complete or current.