Home Equity FAQs

Questions we often get from our customers about home equity

Q. Why refinance?

A. If you currently have an Adjustable Rate Mortgage (ARM) and your payments are expected to increase due to an expected mortgage rate increase or you would like to benefit from the convenience of a guaranteed fixed payment amount for your loan term, refinancing may be a good option for you.

If you want to turn the equity you have built in your home into cash for additional expenses like home improvement, educational expenses or other financial needs, refinancing would be a great option for you.

Q.   How do I get started?

A. To get started on a new refinancing application, call 800.222.2299 or visit a local branch near you.

Q.   How do I determine my home's equity?

A. The equity in your home is determined by subtracting your outstanding mortgages or liens from the market value of your property. Try our calculator (under the Qualifications tab) to estimate the current equity in your home

Q.   What is a line of credit?

A. A home equity line of credit is an open line that is secured by your primary or secondary residence. It allows you to borrow funds at any time, up to your available credit limit.

Q.   What is refinancing?

A. In simple terms, refinancing replaces your current mortgage loan with a new one. Homeowners typically refinance to reduce monthly payments (because the current rates are lower than what they are paying), to switch to a different type of mortgage, or to cash out equity in their home.

Q.   At what point might refinancing save me money?

A. If mortgage rates are 5/8-percent lower than what you're currently paying, refinancing may offer you savings against what you are currently paying.

Q.   Do I need a home equity loan or a home equity line of credit?

A. Both products use your home as collateral. The main differences between the products are: The line of credit is accessible for a long–term draw period, usually by check. Once you pay down your balance, you then have more money available to spend again if necessary. A home equity loan disburses all funds at once when the loan term starts and you cannot access any further funds without refinancing. A line of credit has a variable interest rate. A home equity loan has a fixed rate. A home equity loan has payments that don't change. A home equity line of credit has a payment that can change every month, either because the balance changes (increases if you spend more; decreases if you pay down what you owe) or because the interest rate changes because of the Prime rate changing.

Q.   Do I want an interest-only loan?

A. Interest-only loans allow you flexibility on monthly payments when your cash flow does not permit a fully amortizing loan payment. The minimum loan payment covers the interest portion of the loan only, so your principal only decreases if you pay above and beyond the interest. You have the flexibility to decide how much principal you pay each month, so you can pay little or none if times are tight, or a lot if you have extra that month.

Q.   Why should I refinance?

A. There are numerous reasons customers refinance the loans they already have. Some of these are to lower the monthly payment or interest rate, to switch from an adjustable rate to a fixed rate or vice-versa, to refinance for a higher amount in order to pay off other debts or get cash, or to change the remaining term of the loan. Whatever your needs, we can help you decide what makes the most sense for you.

Q.   Do I need a home appraisal?

A. Sometimes we do not need to conduct an appraisal; other times we have to conduct a full appraisal, and there are levels in between. Only after reviewing your application and collateral information will it be determined whether one is needed for your situation.

Q.   What is the difference between interest rate and APR?

A. The interest rate is the cost to borrow the money disbursed in the loan. The APR is the total cost of the loan over its life, including costs, points and fees.

Which amounts are included in my monthly payments?

Category:  Costs & Fees

Home Equity Lines of Credit require monthly payments of the interest due on the outstanding principal, while Home Equity Loans are fully amortized payments that contain both principal and interest. HELOCs and HE Loans do not require mortgage insurance, nor do they carry escrows for taxes and insurance.

No matter the type of mortgage product you have, you can always make additional payments toward principal, which will help you pay off your loan more quickly.

What is PMI?

Category:  Costs & Fees

Private Mortgage Insurance (PMI) protects lenders against losses that can occur when a borrower defaults on a mortgage. PMI is required on first mortgage purchase transactions when the borrower has less than a 20% down payment. Likewise, it is required on first mortgage refinance transactions when the borrower has less than 20% equity in the property being refinanced. The cost of the mortgage insurance is typically added to the monthly mortgage payment.

How do I figure out how much equity I have?

Category:  Equity in home
To understand how much equity you have in your home, just write down your home's value and then subtract all amounts that are owed on that property. The difference is the amount of equity you have. If you have a property worth $100,000, and the total mortgage balances owed on the property are $80,000, then you have a total of $20,000 in equity or 20%. When performing this exercise, just take your best guess as to what your property is worth, use a home value estimator, or ask a banker for other methods of determining value. Typically, to qualify for a home equity loan you must have at least 20% equity, also known as an LTV of 80%.

What is LTV and why does it matter?

Category:  Equity in home

LTV stands for loan-to value. It is the total amount of liens on the property divided by its fair market value. Fair market value will be based on the lower of purchase price or estimated market value as established by the appraisal.

Why should I use my equity?

Category:  Equity in home
Using the equity in your home is a great way to improve your property, consolidate high-interest debt, finance important life events, or even cover unexpected emergencies. The interest you pay is usually tax deductible. (Consult a tax advisor for more information.

Is my interest tax deductible?

Category: Getting a loan decision
Interest you pay on a loan which is secured by your primary residence may very well be tax deductible. You should consult with a tax advisor to determine whether this applies to your situation.

How is the lending decision made?

Category:  Getting a loan decision

When reviewing your application information, an underwriter examines your credit history, your property value, and your debt-to-income ratio. These are the main factors which describe you as a mortgage applicant. This perceived level of risk determines your loan decision as well as your interest rate in some cases.

What will my rate be?

Category:  Getting a loan decision

Rates are based on a variety of factors such as the loan purpose, your credit history and ability to repay, the value of the collateral, and the loan amount, to name a few.

How much money can I get?

Category:  Getting a loan decision

The two main factors in answering this question are your debt-to-income ratio, and the LTV ratio on your home. To calculate your debt-to-income ratio, write down all of your monthly debts (don't worry about utilities or your television service), then divide that amount by your monthly gross income. The underwriter will take a look at the percentage that results and determine how much you can afford to pay per month. Then, depending on your LTV(equity in your home), it can be determined how much you could borrow and still be within what you can afford.

Do I have to have perfect credit?

Category:  Getting a loan decision
While it is true that if your credit score is high you may receive better rates and have more options available to you, this doesn't mean you can't obtain a mortgage if you've had some slips in the past. Credit is only one factor in the underwriting process, so don't think that this alone will stop you from getting a loan; however, your credit history needs to demonstrate both willingness and ability to repay on time.