USING YOUR HOME’S EQUITY TO MAKE HOME IMPROVEMENTS

One of the most popular uses of home equity is to make improvements to your home. According to a recent article in The Wall Street Journal, the American homeowner spends an average of $2,747 on each home improvement project. Many home improvement projects can have a positive effect on the value of a home. Sometimes, nearly all the cost of the home improvement can be recovered if the residence is sold within a year after completion. Of course, a home equity line or loan can be used for many other purposes – to consolidate debt, pay for an auto, wedding or college tuition or other important needs,Understanding how to borrow against your home’s equityHomeowners should consider using the equity in their home to make additional improvements. One of the biggest advantages of home equity borrowing is the interest rate, which is significantly lower than credit cards. In addition, the interest you pay on a home equity line or loan is tax deductible in most cases. Under the tax law, when using either a home equity loan or line, you may be able to deduct the interest because the debt is secured by your home. But check with a tax advisor to see how the tax laws would impact you.A home’s equity is the amount of money you could expect to have if you were to sell your home and paid any outstanding mortgages on the property. For example, if your house could be sold today for $100,000, and you had a mortgage balance of $40,000, the equity in your home would be $60,000. Borrowers may be able to use anywhere from 85 percent to 100 percent of the equity available in their homes. However, rates generally are higher on equity lines that cover all the equity in a home. Third Federal allows customers to borrow up to 85 percent of the equity in their homes at one low rate of interest. A home equity line is a smart financial tool to have in place before you need it so you’re not scrambling to get a loan when you need the money immediately.There are two types of home equity products – home equity lines of credit and home equity loans:• With a home equity loan, you borrow a set amount of money for a fixed term at a fixed interest rate (much like a car loan). You get the money all at once and begin paying back the money on monthly installments immediately. • With a home equity line of credit, you are given a maximum credit line you can borrow against (much like a credit card), but you don’t have to take the funds all at once. You draw on your line of credit when you need the money, in any amount up to your credit limit. And, you only pay the variable interest rate on the amount you actually use. There will be cap on the variable interest rate. At Third Federal, the cap is just six percent above the borrower’s initial rate.Selecting the Right LenderTake the time to select the right lender. Compare what various lenders can offer to make sure you’re getting the product that meets your specific needs. Look closely at the fine print and any additional costs that you might be charged. Some lender charge closing costs, application fees, annual fees and prepayment penalties. It is important to factor in these costs, along with the actual rate to determine what your final cost will be. Not all lenders charge closing costs, however. Third Federal Savings and Loan, for example, has competitive rates and no hidden costs such as annual fee, closing costs, minimum balance requirement or prepayment penalty. Here are some questions you should ask prospective lenders:• What is the actual rate? Beware of introductory and teaser rates. Take the time to determine the total cost (rate and fees charged) before making a final decision.• What are the closing costs? • Is there an application fee or loan origination fee?• Does the lender charge an annual fee?• Are there penalties for paying off the loan early?• Does the lender charge points? • Does the lender require you to open a checking account with them?• Does the lender require you to carry a minimum balance on the account?Using the equity in your home is a great financial tool to help meet your family’s financial goals, whether it is to build a new family room, pay for a child’s education, take that dream vacation, or pay for unexpected emergencies. It is important to take the time to understand what home equity is and comparison-shop before selecting a lender.

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