how do home equity loans work?


Couple planning out their home construction project.

what is a home equity loan?

A home equity loan — also known as a second mortgage, term loan, or equity loan — is when a homeowner borrows money against the equity in their home. A home equity loan is usually in a “second lien position” to your primary home mortgage loan; hence, the commonly referred to term "second mortgage." However, even if your primary home mortgage loan is paid off, you may still obtain a home equity loan.

A home equity loan or second mortgage can be a source of money to fund your major financial goals, as well as other unexpected expenses that life may throw at you, such as college tuition, medical bills, home renovations, debt consolidations, wedding expenses, auto repairs, and more! This type of loan can also prevent building up credit card debt with high-interest rates and may be tax deductible (check with your tax advisor). With a second mortgage, you're putting up your home as collateral for the loan, so if you were to default on this type of loan, the bank or credit union could foreclose and take your home. This type of loan will reduce the equity you have in your home, so when and if you sell your home, you’ll have to pay off both your first and second mortgages with your sale proceeds.

Home equity loans or second mortgages are different than a home equity line of credit (HELOC). With a HELOC, you receive a line of credit secured by your home, and you can use it as you need it, similar to a credit card. With a home equity line of credit, you won’t receive a lump-sum payment like you would with a fixed-term home equity loan.

Make sure you’re able to pay a second mortgage on top of the mortgage you’re already paying. Plan carefully and talk to your financial advisor to see if a second mortgage makes financial sense for you. By using your home’s equity as collateral, you can make your home work for you!

why should I get a home equity loan?

Wondering if a home equity loan is the right choice for you? Take a look at the multiple benefits that borrowing against the value of your home can add to your life!

1. quick and easy access to your funds

When you take advantage of home equity loan opportunities, you take advantage of local, hometown, superior service from friendly and experienced loan advisors. Most financial institutions offer quick and seamless service giving you access to your funds fast so you can get to your project and goals sooner.

2. competitive low rates and flexible terms

A loan that is a perfect fit for your financial situation. Home equity loans typically offer a low variable rate on line-of-credits with generous credit limits. This makes for easy financial planning and budgeting on your end, creating less stress for you!

3. substantially lower closing costs

A home equity loan usually has substantially lower closing costs than if you refinance your primary home mortgage loan in order to obtain a portion of your home’s equity.

4. tax-deductible interest

When you use these funds to substantially improve the value of your home, you could be eligible to write that off on your taxes! This could mean more money in your pocket come tax season – who can say “no” to that? It's recommended that you consult a tax advisor first, however.

5. convenient payment options

It's simple to make payments through BlueOx Credit Union! Getting financed with our home loan partner, Mortgage Center, means you'll still be able to make your payments with us - either online or at your local BlueOx branch!

It's also important to look at your budget and current financial position to decide if a home equity loan is going to benefit you or not. It's common for a lender to require at least a credit score in the mid-600s, a good credit history, as well as valid and steady employment and income.

how do I build my home’s equity?

Often a lender will require at least 20 percent equity before giving out a home equity loan. So how do you get there?

large down payments

The more you pay down on the loan, the more the value of your home increases, and ultimately, the more equity available to you. If you decide to pay 20 percent for your initial down payment, this may make that equity available to you sooner, as well as give you more to work with.

make your mortgage payments

The more you pay off your first mortgage, the higher the equity of your home will be. You can always make additional payments towards the principle of your mortgage to pay it off sooner.

make home improvements

It's all about curb appeal! Some home renovation projects will increase your home’s value more than others. Start with remodeling a kitchen or bathroom, replacing a garage door, doing some landscaping, or finishing the basement.

how do I get a home equity loan?

Ready to make those renovations and get this process started? You can apply for a Home Equity Line-of-Credit with BlueOx Credit Union at any of our branch locations or by giving us a call at (800) 648-8035.

what should I bring:

to my appointment

  • Legal description of the property from deed or title insurance
  • Recent appraisal and/or property tax statement disclosing SEV
  • Current income verification (current W2s and/or last two year’s income tax returns)

to my loan closing

  • Driver’s license
  • Copy of homeowner’s insurance policy adding BlueOx Credit Union as an additional loss payee

By applying for a home equity loan with BlueOx, you could potentially borrow up to 90% of your home’s equity. Call us today - We're ready and excited to help make your life’s dreams and goals a reality!

Apply Now

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