When most people think of getting a home equity loan, it is to finance a home improvement project. But your home’s equity can be used to do anything from consolidate debt, to pay for college, to cover the cost of flood damage not covered by your insurance.
Home equity loans work by borrowing on the equity you have in your home, which is the amount your home is assessed at, minus the amount you owe on your mortgage. For example, if your home is assessed at $150,000 and you owe $80,000 on your mortgage, then you have $70,000 in home equity. You can borrow up to 95 percent of your assessed value in a home equity loan.
Sherry Herrick, mortgage loan originator at IHMVCU, has helped many members take out home equity loans to pay off their first mortgage. That way homeowners can get a lower interest rate without paying closing costs. On a mortgage with $40,000 remaining in the principal, taking out a home equity loan can save $1,650 over the cost of a traditional mortgage refinance. Plus you can still get a tax deduction on the interest you pay on the home equity loan.
Another member who owned their home outright took out a home equity loan to consolidate medical bills and credit card debt. Home equity loans are also a good alternative to short term loans, which have higher interest rates.
“The biggest advantage is interest rates,” said Herrick. “Interest rates on an unsecured loan or credit cards are a lot higher than a home equity loan. So taking out a home equity loan saves money on interest and you could qualify for a possible tax deduction.”
You don’t have to be a member or have your mortgage with IHMVCU to apply for a home equity loan. But if you are approved, you will have to become a member in order to receive the loan. For more information, contact us at (309) 793-6200 or toll-free, (800) 722-0333.
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