Understanding home equity loans
A home equity loan, sometimes called a second mortgage, allows you to borrow money at a very competitive rate using your home as collateral. Your available equity is based on the appraised value of your home less the amount you currently owe on your first mortgage. There’s an added benefit of using a home equity loan: your interest may be tax deductible. (Consult your tax advisor for information specific to your situation.)
A home equity loan is an installment loan offering either a fixed or variable rate of interest for a set dollar amount and a set term.
A home equity line of credit is a revolving line of credit that works very much like a credit card – but the rate is typically much lower. You can borrow what you need, up to the amount of the limit of your credit line (which is determined by the available equity in your home and other factors) for a period of time defined as the “draw period”. After that, you’ll pay off the balance over a period of years.
Getting a home equity loan or line of credit can be a great way to make major purchases at very attractive interest rates. Just remember that you are using your home as collateral. If you are unable to repay the loan, you are risking your home.
Learn more about home equity in this article from GreenPath – a free financial education resource for Cornerstone members.
Find current rates and terms on Cornerstone home equity products here.