Point Breeze Credit Union Blog

Put Your Home's Equity to Work for You

A basic understanding of home equity lending 

What is a home equity loan?

A home equity loan is a closed end/term loan, sometimes referred to as a second mortgage, that you can obtain based on the equity of your home. These loans normally have a shorter loan term than mortgages, such as 10 to 15 years instead of 30. The homeowner receives the money all at once. In this type of loan, the home’s equity is used as collateral to ensure you can repay the loan.

How is a home equity line of credit (HELOC) different from a home equity loan?

HELOCs operate more like credit cards. They have an open line of credit for a set period of time that you can use if you need it. If your lender approves your HELOC, you will have a maximum credit limit based on the equity of your home and other factors. The lender will be able to adjust your limit up or down or may even cancel the credit line, based on changes in your home’s value or changes in your credit and repayment history. With HELOCs, your available credit is restored as you pay it back.

How can I use these loans?

You can use a home equity loan or HELOC for many things. Most people choose to make improvements to their home. Some people use the money to pay off bills, make large purchases, pay for schooling, or make investments.

How do I qualify for a home equity loan or HELOC?

The home must be your primary residence and the home’s value must be more than what you currently owe on your mortgage. Approvals are based on overall credit history, debt to income ratio, and employment history.

Are there any restrictions for getting a home equity loan or HELOC?

For a HELOC, the amount of money available may not be greater than 80% of the value of the property, combining the first and second mortgages. For a closed end home equity loan, the standard is also 80% of the home’s value. An equity plus program may give up to 100% of the value of the home.

Click for more information about a home equity loan or HELOC, or call us at 410.584.7228 to speak with a loan officer.