Access the Equity in Your Home with Confidence

The ability to consolidate higher-rate unsecured debt or make home improvements at relatively low annual percentage rates and predictable monthly payments can make accessing your home’s equity seem like a financial holy grail. For the uninitiated, however, the thought of accessing the equity in a home can be daunting. It doesn’t have to be. Here is some information from the pros at NASA Federal designed to take the mystery out of the process and help you access the equity in your home with confidence.

Understanding the Basics of Home Equity

Before applying for a home equity loan or line of credit, it’s important to know some of the basics. For starters, similar to primary mortgages, home equity loans or lines of credit are collateralized by your home. The difference is that they are subordinate to primary mortgages such that, in the event of foreclosure, primary mortgages will be repaid first. Because of this, home equity loans or lines of credit represent slightly riskier loans to lenders and therefore have higher interest rates than primary mortgages.

At the same time, home equity loans or lines of credit are considered less risky in the eyes of lenders than unsecured loans such as credit cards and consolidation loans. Therefore, home equity interest rates are usually much lower, making them a better financial option for consumers than unsecured loans.

Deciding if Home Equity Is Right for You

So how do you know if home equity is the answer? Laura Champion, NASA Federal Home Equity Manager, suggests asking yourself the following questions:

• Do you frequently use credit cards to pay for household bills, but don’t pay off the balance every month?
• If you subtract your expenses from your income, is there a deficit?
• If you were to consolidate your debts by using the equity in your home, would there be a strong possibility of incurring more unsecured debt?

If you answered “yes” to any of these questions, using the equity in your home to consolidate debt may be a short-term solution that could put your home at risk of foreclosure in the long run.

However, if you answered “no” to these questions, read on! A home equity loan or line of credit just may fit you to a tee.

What to Look for—And Avoid

One important factor to consider when looking for a home equity loan or line of credit is closing costs, which can include loan points and application, origination, title search, appraisal, credit check, notary, and legal fees. “These can represent thousands of dollars, so shopping around can really pay off,” explains Champion. “NASA Federal offers both home equity loans and lines of credit with no points, closing costs, or annual fees, so we’re an excellent place to start.”

Next, landing a great APR (Annual Percentage Rate) is integral to getting the most out of your home’s equity, so it once again pays to do your research. “We offer fixed rates as low as 6.50% APR for 60-months and variable rates as low as 7.75% APR,” states Champion, “so we’re highly competitive and can definitely save you money.”

Then there’s the question of how much you’ll be able to borrow. The amount of equity available for you to borrow will typically be determined by subtracting the amount you still owe on your primary mortgage from the appraised value of your home and then applying a percentage. “At NASA Federal, we will give you access to up 95% of your home’s value up to $150,000 and 85% of your home's value up to $400,000,” states Champion. “But the nice part is that you’re not required to borrow the full amount and can set the loan or line of credit amount to match what you need.”

Final consideration should also be given to balloon payments, prepayment penalties, punitive interest rates in the event of default, and inclusion of credit insurance. “NASA Federal requires none of these,” confirms Champion.

Home Equity Loan or Line of Credit?

You’ve done your research and chosen to access your home’s equity for your needs. The next step is determining whether you need a home equity loan or line of credit, which will depend on what you’re using the equity for.

Lump Sum

A home equity loan is a great option if you need a set amount for a specific purpose, such as an addition to your home or a consolidation of unsecured debt. With a home equity loan, you will receive a lump sum of cash at a fixed rate when you close your loan. The repayment term will typically run from 5 to 20 years, with the repayment schedule calling for set payments that pay off the entire loan within that timeframe.

Ongoing Access

If you have ongoing borrowing needs, a home equity line of credit is the answer. It’s a form of revolving credit from which you can take relatively small sums periodically, with interest charged only when you access the money. Once approved, you will be able to borrow up to your limit for a set period of time (typically five years), then will have a pre-determined timeframe to pay it off (typically 15 years).

“Some lenders will actually charge membership or maintenance and transaction fees every time you draw on the line,” says Champion. “At NASA Federal, we do not. We make it extremely easy to access the funds in your home equity line of credit. You’re able to pay for anything at any time with Online Banking or convenience checks, and there’s never a fee.”

Ready to Take the Plunge?

Is a NASA Federal home equity product right for you? Visit nasafcu.com/home-equity to apply or call 1-888-NASA-FCU to speak with a NASA Federal second mortgage specialist today. We’ll help you access the equity in your home with confidence and have your loan or line of credit open and available in no time.

This article has been provided for educational purposes only and is not intended to replace the advice of a loan representative or financial advisor. The examples provided within the article are for example only and may not apply to your situation. Since every situation is different, we recommend speaking to a loan representative or financial advisor regarding your specific needs.

All loans subject to approval. Rates referenced as of April 6, 2023 and are subject to change at any time, without notice.