Your Guide to Home Equity Loans

Owning a home offers some potential financial advantages. One of them is equity, or the difference between the value of your home and your mortgage balance. Equity grows as you pay down your mortgage or as your home's value appreciates. Once you've built enough equity, you can tap into it through a home equity loan or line of credit (HELOC). This type of loan can be a great way to access funds when you need them most.

Whether you're looking to renovate your home, add solar, cover college tuition, or consolidate debt, a home equity loan or HELOC offers a reliable and structured way to meet your financial goals.

How do home equity loans work?

A home equity loan or HELOC allows you to borrow against the equity you’ve built in your home. This is a secured loan, meaning the loan is backed by your home as collateral. The amount you can borrow is determined by the difference between your home’s current market value and the outstanding balance of your primary mortgage. Most financial institutions will allow you to borrow up to 80% of your home’s value. 

Home value: $500,000 x .8 = $400,000 
First mortgage value:     -     $200,000
Equity:                                $200,000
 
Home equity loan vs. HELOC
A home equity loan and a HELOC might sound similar, but they work differently. With a home equity loan, you borrow a one-time lump sum that you repay in fixed installments over time. Home equity loans come with a fixed interest rate, offering predictable monthly payments over the term of the loan. This makes them ideal for homeowners with defined, one-time financial needs such as large home improvement projects, medical bills, or other significant expenses.
 
On the other hand, a HELOC is established with an approved credit limit, similar to a credit card. Then you can simply borrow from the line of credit as needed. Payments are typically less than a closed-end loan and usually feature an interest-only payment for a defined period of time. As you pay off the balance, it becomes available for future use. This is a great option for home improvement projects that will take time to complete where the total cost is unknown or not due all at once. 
 
Each option has its own advantages and is better suited for different financial needs.
Benefits of home equity loans
Home equity loans provide numerous advantages that make them a popular choice for many homeowners.
  • Predictable payments: With a fixed interest rate and consistent monthly payments, budgeting is straightforward.
  • Lower interest rates: Compared to credit cards or personal loans, home equity loans typically have much lower interest rates, which can save you significant money over time.
  • Possible tax benefits: Interest payments on your home equity loan may be tax-deductible if the funds are used for specific qualifying expenses, like home improvements .
  • Large lump sum: Borrowers receive the full loan amount upfront, making it ideal for funding major expenses such as a remodel, a wedding, or a medical procedure.
Ideal situations for home equity loans
Home equity loans are an excellent choice for borrowers with clear, one-time financial needs. Common scenarios where they are most suitable include: 
  • Home renovations: Finance projects that improve your living space and boost your property’s value.
  • Debt consolidation: Pay off high-interest rate credit card debts by rolling them into one lower-interest loan.
  • Education costs: Cover tuition and related expenses for yourself or your children.
  • Large purchases or events: Fund weddings, vacations, or other major one-time expenses.
A home equity loan can be a powerful financial tool for achieving your goals. Take advantage of our home equity loans with rates as low as 4.99% APR. Our real estate experts are here to help you assess your lendable equity and find the best option to fit your needs. Visit our website to learn more or call a member service representative at (888) 858-6878.



 
 

Pacific Service Credit Union does not offer financial or tax advice. Please consult a tax advisor regarding the deductibility of interest.