Advantages of a Credit Union Home Equity Loan

One of the perks of being a homeowner is accessing your home’s equity to help with expenses you may not otherwise be able to easily afford. Whether you need home renovations or want to consolidate debt, there are many advantages a home equity loan has to offer by allowing you to take out a loan using your home’s equity as collateral. The biggest advantage of a home equity loan is you can access a large amount of money up front to cover big expenses.  

Home values have recently skyrocketed, and as a homeowner, you could be sitting on a lot of equity. You could use that equity to fund a vacation, renovate your home, consolidate debt, or anything else.  

Borrowing money may seem overwhelming. However, at Arkansas Federal, our lending team is ready to help you navigate your home equity loan from start to finish.

What is home equity?

Home equity is the amount of your home that you actually owe. You can calculate equity by taking the market value of your home and subtracting the amount you owe on your mortgage. For example, if your home is worth $200,000 and you owe $150,000 on your mortgage, you have $50,000 of equity.

You can use your home equity as collateral for a loan or line of credit, allowing you to use your built-up equity to access additional funds if needed.

What Is A Home Equity Loan?  

To understand what a home equity loan is, it’s important to understand how home equity works first. An easy way to understand it is that home equity is the current market value of your home, minus what you still owe.  

A home equity loan is when homeowners take out a loan that allows them to borrow against their home equity. Not to be confused with HELOC (Home Equity Line of Credit), a home equity loan offers steady interest rates and terms, along with a single payment. HELOCs, on the other hand, are more like a credit card or a revolving line of credit that allows homeowners to continually draw on up to a certain level of their home’s equity.  

Home equity loans are ideal when you want to cover larger expenses without worrying about a high-variable interest rate like with a credit card. The most common events and emergencies that a home equity loan could help fund include: 

• Home improvements 
• Debt consolidation  

• Medical bills 
• Weddings or big celebrations 
• Starting a business  
• Vacations  

Advantages And Disadvantages Of A Home Equity Loan  

When getting a home equity loan, just like any loan, it has its pros and cons. This type of loan won’t be a solution for everyone but offers a lump sum upfront for the borrower. The advantages of a home equity loan may be worth the risk depending on your home’s value and how you’ll use the loan. Arkansas Federal Credit Union offers many benefits for those needing a home equity loan with a $0 application fee!

Benefits of Home Equity Loans 

People who choose a home equity loan may notice significant advantages compared with other forms of borrowing. The biggest benefit is that using your home’s equity often allows you to access a larger loan amount than through credit cards or a personal loan. Instead of having to piece together the amount through a number of different sources, you can use a home equity loan to have a single loan with one set of terms. 

Lower Fixed Interest Rates 

One of the most significant advantages of a home equity loan is lower fixed interest rates, especially with Arkansas Federal Credit Union. Unlike a HELOC, these loans have a fixed rate of interest that will not change throughout the duration of the loan. Arkansas Federal Credit Union offers competitive rates to turn your home’s value into cash. 

Long Repayment Terms  

Another major advantage of a home equity loan is the longer repayment terms. Unlike other loans or credit cards, you can pay these loans over a longer time. Most terms require you to pay back your loan amount between 5 and 20 years. However, some will allow you up to 30 years to repay the loan.  

Lower Monthly Payments  

A key benefit of a home equity loan is lower monthly payments at a fixed rate throughout your loan term. These loans make your payments predictable whether you are funding a wedding or significant home renovation.

Disadvantages of Home Equity Loans 

However, there are also quite a few disadvantages of getting a home equity loan all homeowners should understand. Ultimately, you should consider the risks of using your home’s equity for expenses and if it’s worth it to you.  

Closing Costs 

If you’re looking into a home equity loan, be sure to consider any origination fees or closing costs. Unlike other kinds of lines of credit, some home equity loans have additional fees that other kinds of loans or lines of credit don’t have. If you’re borrowing a small amount, it may not be worth it to pay the additional fees. 

Must Borrow Lump Sum 

Another disadvantage of a home equity loan is a single, large payment. If you need routine access to additional capital, a home equity loan may not be the right solution. For example, if you find you need more after you receive your loan payment, you may not be able to get additional money through a home equity loan. 

Requires Low Debt and Good Credit 

If you have poor credit or already have a significant amount of debt, you may not be eligible for a home equity loan. Lenders assess your ability to repay the loan over time just like other kinds of loans, like your original mortgage payment.  

Could Lose Your Home 

It’s also important to understand the largest disadvantage of a home equity loan: losing your home. If you are unable to pay back the home equity loan, it may put your home at risk. 

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If you are unsure if this type of loan is the right move for you, call us at Arkansas Federal Credit Union to speak with one of our team members. We offer competitive fixed rates and flexible terms to help ease the stress of borrowing money. You can learn more information about our current home equity loan rates and use our home equity loan calculator to see an example of what your payments may look like.  

Is An Arkansas Federal Credit Union Home Equity Loan The Right Move For You?  

Home equity loans can be a great solution for significant home improvements or other large expenses. But they’re not the best solution for everyone. Understanding the advantages and disadvantages of a home equity loan can help you make the right decision for your personal finances. 

If you have good credit and a low debt-to-income ratio, a home equity loan could solve your financial needs. Getting a home equity loan through Arkansas Federal Credit Union offers a variety of features and benefits to help create a smooth loan process.  

• Fixed rates and monthly payments  
• $0 application fee  
• Up to 95% financing  
• No origination fees  
• Competitive home equity rates 

Arkansas Federal Credit Union offers a $0 application fee which could save you up to $500 as others typically charge hefty fees just for applying. We offer 95% financing so that you can borrow up to 95% of your home’s value. We also offer steady and reliable monthly payments with fixed rates.   

If you’re still unsure if a home equity loan could be the right move for you, Arkansas Federal Credit Union offers a free-to-use home equity rate and payment calculator to estimate how much you might be able to borrow. Give us a call at 800.456.3000 to discuss your possibilities.