PGCFCU Blog

You’ve lived in your home for a few years now, and you’re thinking about tackling a few home improvements projects. With springtime right around the corner, it couldn’t be a better time. Whether you decide to take on an extensive remodeling project or upgrade your backyard landscaping, you might have an untapped source of funds to make it happen.

Purchasing a home is a big investment. It’s also one that doesn’t require you to sell or pay in full before enjoying a significant return on that investment. As you pay down your mortgage each month, you’re building equity. Many homeowners realize that they’ve accumulated more equity in their home than what they’ve paid toward the principal balance of the mortgage. This results from increased home values. Homeowners benefit because it allows them to build equity quickly. Equity is the difference between what you owe on your home and the current market value.

Did you know that you can access the equity in your property without selling your home and use those funds to make home improvements or pay for other expenses such as college tuition? This can be done by tapping into the value of your home by borrowing against the equity with a home equity line of credit (HELOC) or home equity loan.

Both let you use the equity in your residence without selling your home, but there are fundamental differences.

Why Use a Home Equity Line of Credit (HELOC)

Flexibility
Sometimes called a “HELOC loan,” a home equity line of credit provides flexibility for homeowners. Borrowers should first understand that a HELOC is not a loan in the traditional sense. Instead of receiving cash in one lump sum, borrowers can use the money as they need it. With approved credit, you can use funds as you need them up to your credit limit to pay for college tuition, complete home improvements or consolidate high-interest credit card debt.

High Borrowing Capacity
At Prince George’s Community Federal Credit Union, eligible homeowners can borrow up to 90% of the home’s value over ten years. This means that as you repay the HELOC, you will be eligible to draw upon your available credit again, similar to the way a credit card works.

For example, if you are approved for a $20,000 HELOC, you may not need to use it all now. You could borrow $10,000 for a bathroom remodeling project and leave the rest of your line of credit alone. Over time, you pay back $5,000 towards the loan principal. You now have $15,000 in available credit.

Borrowers can continue to use and repay the line of credit over the 10-year draw period. When the period ends, borrowers enter into repayment and may no longer draw on the HELOC.

Easy Access
Your line of credit is available when you use a designated card (similar to a credit card) or check tied to the line of credit account.

Why Use a Home Equity Loan

Pre-Established Rates and Terms
Similar to other loans, a home equity loan is received in one lump sum. The loan is available at a fixed interest rate and must be repaid within a specified period.

High Borrowing Capacity
At Prince George’s Community Federal Credit Union, eligible homeowners can borrow up to 100% of the home’s value.

Predictable Payments
Since the loan is for a fixed rate and term, your monthly payment amount will not change over the life of the loan.

How Do I Decide Which One is Best for Me?

A home equity line of credit may work for you if:

• You like paying interest only on what you borrow but still having access to additional funds if needed.
• Intend to use the funds for expenses that will be spread out over several years, e.g., college tuition, minor home improvement projects, etc.
• You can obtain a lower interest rate and higher credit limit than what’s offered on your credit cards.

A home equity loan may be the better option if:

• You need predictable monthly payments.
• You’re prepared to pay closing costs and fees on your new loan.
• You’re ready to use the money right away for a specific purpose, e.g., paying off higher interest rate credits cards, kitchen remodeling project, etc.

Homeownership provides an opportunity to establish wealth not only for the long-term but offers a chance to benefit from a return on investment in the short term. Using the equity in your home to pay for expenses may be the best choice for you. Speak with a Home Equity Specialist today to complete the application process. Don’t forget to enter our $50K Dream Backyard Sweepstakes. Good luck!