Unwrap Your Home’s Equity

The best gifts are those that keep giving. While it’s not a tangible item or wrapped up with a bow, your home equity certainly falls under this category! This asset is the amount of your home you own outright. You can calculate this by subtracting your outstanding mortgage loan balance from the market value of the property. As a homeowner, equity is beneficial to you because it can be used to fund future wants or needs. The guide below walks through the different ways you can tap into your home’s equity and the beneficial ways you can use it.

Accessing your home’s equity

Home equity line of credit (HELOC)

A HELOC is a revolving line of credit with a draw period and a repayment period. During the draw period, you can use funds up to an approved credit limit and will only have to make interest payments. Once the draw period ends, you have to pay back the principal along with any interest charges. As well, you can’t withdraw additional funds during the repayment period. If you would benefit from the option to borrow up to your credit limit several times as opposed to receiving a one-time lump sum, a HELOC may be ideal for you.

Home equity loan

You can use your home as collateral to open a secure home equity loan. When a loan is secured, the lender incurs less risk. For this reason, they’ll generally offer you more favorable interest rates. Compare home equity loan rates across multiple financial institutions to secure the best option. Often, credit unions have more competitive loan rates than big banks. This is because, as a not-for-profit entity, they funnel credit union profits back to their members in the form of better rates and lower fees.

Because your home is used as collateral to secure a home equity loan, a lender is within their right to seize it if you are not making on-time payments. While this is a last resort, it’s within the realm of possibility and should be factored into your decision of applying for a home equity loan. Verify that you can reasonably afford to pay off the amount you borrow according to the repayment schedule. In doing so, you can ensure your finances stay on track and your assets remain yours.

Using equity

Home improvement project
Because the market value of a property changes over time, equity can rise and fall in tandem. Some homeowners tap into their home’s equity and invest the funds back into the property by completing renovations that increase its value. Projects with the highest return on investment include minor or major kitchen and bathroom remodels, attic conversions, and basement remodels.¹

Debt payoff

A HELOC is a viable and more affordable way to consolidate credit card debt. The APR for a HELOC is typically lower compared to borrowing products not secured by collateral. Not only this, but you can simplify monthly payments by transferring balances from multiple cards onto one account. Staying on top of payments is easier when you only need to remember the login information for one account instead of several. Only use a HELOC for debt payoff after confirming you can afford payments, or your efforts could backfire and land you in more debt than where you started.

Education

The average cost of tuition at a public college for the 2021-2022 year is $10,388.² On top of this, students must purchase textbooks, room and board, and other supplies. While many individuals take out student loans to cover the cost of a higher education, using your home’s equity is another viable option. Some parents or prospective students go this route because rates on home equity loans are typically lower than the average student loan; and the interest paid on a home equity loan may be tax deductible.

Home equity presents endless opportunities. If you’re ready to tap into your home’s equity, reach out to the team at General Electric Credit Union (GECU). You’ll enjoy the following on both our HELOCs and home equity loans:

• $0 application fee
• No closing costs
• No prepayment penalties
• Eligible for tax-deductible interest*