Home equity is an asset that increases your financial stability and net worth. Your home is your valuable asset. Consider your mortgage payment as a type of monthly savings deposit.
Home equity is the appraised value of your home minus any outstanding mortgage and loan balances. Simply, it is the portion of your home that you have paid. For many, it is also a homeowner’s most valuable asset. Additionally, home equity increases without you having to do anything more than pay your regular mortgage payments. Home equity builds over time as you pay down mortgage balances, as the value of your home increases due to renovations, or inflation. Equity in your home is an important asset for homeowners since it can be used to borrow a Home Equity Line of Credit (HELOC).
Whether you want to renovate or consolidate debt, borrowing against the equity could be a good option depending on your situation. Home loans have many similarities, but with important differences.
WHY IS HOME EQUITY IMPORTANT?
Home equity is important because it can be part of your long-term strategy for building wealth. Mortgage payments reduce what you owe while your home gains value. Basically, making payments on your home becomes a forced savings account where you can become equity rich. With the equity, you can apply for loans.
To purchase a residence, you would need a mortgage loan. Many financial institutions lend about 80% of the home’s appraised value or the purchase price, whichever is less. For example, a house is appraised at 1 million and you would be eligible to borrow as much as $800,000. You would have to pay the remaining 20% or $200,000.
Additionally, lenders typically lend based on the appraised value of the home. For example, the house is appraised for $800,000 and it’s selling for 1 million. Typically, the lender will approve 80% to 100% of the $800,000. You would have to pay the remaining $200,000 plus the remaining percentage of the appraised value.
The interest rate can be a fixed rate (the same throughout the term of the mortgage) or a variable rate (changing every year). The borrower repays the amount of the loan plus interest over a fixed term. The most common terms are between 15 to 30 years.
A Home Equity Loan is based on the equity that is available in the property, which is the difference between the property’s value and the existing mortgage balance. If your remaining mortgage loan is $500,000 and your property is valued at $1,000,000, for example, you have $500,000 in equity. Assuming your credit is good and you otherwise qualify, you can take out an additional loan using $500,000 as collateral.
A Home Equity Loan is an installment loan repaid over a fixed term. Different lenders have different standards as to what percentage of a home’s equity they are willing to lend, and the borrower’s credit rating helps to make this decision.
A Home Equity Line-of-Credit, known as a HELOC, gives you a revolving credit line to use for large expenses or to consolidate high-interest debt. A HELOC often has a lower interest rate than other types of loans.
Like a Home Equity Loan, you are borrowing against the available equity. As you repay the outstanding balance, the amount of available credit is replenished – much like a credit card. This means you can borrow against it again if you need to and you can borrow as little or as much as you need throughout your draw period up to the approved credit limit. At the end of the draw period, the repayment period begins. Not all Home Equity Lines of Credit are created the same. Some lenders have different draw periods, repayment periods, borrowing limits, and minimum/maximum withdrawal amounts.
WHAT ARE THE SIMILARITIES BETWEEN HOME LOANS?
Mortgages, Home Equity Loans, and Home Equity Lines of Credit (HELOC) are all loans where the borrower pledges their property as collateral.
On average, lenders generally allow you to borrow up to 80% of a home’s value.
Home loans may have tax benefits. Please consult your tax advisor for possible benefits.
HOW TO CALCULATE YOUR HOME EQUITY
Your home’s equity is the difference between how much your home is worth and how much you owe on your mortgage.
To calculate your home equity, subtract the amount of the outstanding mortgage loan from the price you paid for the property.
HOW TO BUILD HOME EQUITY
Your home’s equity increases by two ways. First, as time passes, your home appreciates in value. Secondly, you increase your equity monthly as you pay your mortgage.
TERMS TO KNOW
LOAN-TO-VALUE (LTV) RATIO
Lenders use the loan-to-value (LTV) ratio to determine how much money someone can borrow. LTV is calculated by taking the total amount the borrower still owes on the house and dividing it by the value of the house. If a borrower has paid down a good deal of their mortgage or if the home’s value has risen significantly, the borrower may be able to get a sizable loan.
SECOND MORTGAGES
In many cases, a Home Equity Loan is considered a second mortgage, but not all Home Equity Loans are second mortgages. A borrower who owns his property free and clear may decide to take out a loan against the home’s value. In this case, the lender making the Home Equity Loan will be considered a first-lien holder.
FIXED-RATE
The loan’s interest rate is the same throughout the term of the mortgage.
VARIABLE-RATE
The loan’s interest rate changes on a schedule (for example, monthly, yearly, or on a specified schedule).
POINTS
Mortgage points are also known as discount points, which are fees paid directly to the lender at closing in exchange for a reduced interest rate. This is also called buying down the rate, which can help you lower your monthly mortgage payments and pay less interest over time.
One point equals 1 percent of your mortgage amount (or $1,000 for every $100,000). In general, the longer you plan to own the home, paying down more points help you save on interest over the life of the loan.
CLOSING COSTS
Closing costs are fees and expenses you pay when you close on your house beyond the down payment. These costs may include title insurance, attorney fees, appraisals, taxes, inspections, and more.
Building trust, nurturing dreams, inspiring hope. From home or car loans to Hawaii’s most innovative banking services, Pearl Hawaii is committed to you. Bank at any of our Oahu locations in Waipahu, Ewa Beach, Waianae, Honolulu, Pearl Harbor, or near the Airport. Additionally, you can bank using PHFCUOnline just like one of our branches. To contact us, call us at 808.737.4328, toll-free at 800.987.5583, or email us at MyFamily@phfcu.com.
Caring for our local community with outstanding service and awesome innovation.
OUR PURPOSE
Building trust, nurturing dreams, inspiring hope. One meaningful experience at a time.
Test Modal
In consectetuer turpis ut velit. Aenean ut eros et nisl sagittis vestibulum. Aenean posuere, tortor sed cursus feugiat, nunc augue blandit nunc, eu sollicitudin urna dolor sagittis lacus. Quisque id mi. Phasellus viverra nulla ut metus varius laoreet.
Integer tincidunt. Nullam nulla eros, ultricies sit amet, nonummy id, imperdiet feugiat, pede. Quisque ut nisi. Vestibulum ante ipsum primis in faucibus orci luctus et ultrices posuere cubilia Curae; In ac dui quis mi consectetuer lacinia. Vivamus quis mi.
Test Modal 2
Sed a libero. Nullam nulla eros, ultricies sit amet, nonummy id, imperdiet feugiat, pede. Pellentesque habitant morbi tristique senectus et netus et malesuada fames ac turpis egestas. Phasellus blandit leo ut odio. Nullam nulla eros, ultricies sit amet, nonummy id, imperdiet feugiat, pede.
Ut varius tincidunt libero. Cras ultricies mi eu turpis hendrerit fringilla. Morbi ac felis. Vestibulum facilisis, purus nec pulvinar iaculis, ligula mi congue nunc, vitae euismod ligula urna in dolor. Donec mollis hendrerit risus.
Upgrade
Open an Account
Open an account and fund it online, from home, in minutes
Members with an existing PHFCUOnline username are experiencing problems with logging into the new home banking site. We are currently working quickly to resolve this issue. The work around is to click on the Forgotten Password link and to follow the onscreen instructions.
· Send it in the mail: PEARL HAWAII FEDERAL CREDIT UNION, Attn: Human Resources Dept., 94-449 Ukee Street, Waipahu, HI 96797
The Pearl Wallet card control app is currently unavailable. We apologize for the inconvenience and will notify you when the app is available. If you need assistance, please contact MyFamily@phfcu.com
.
Leaving Our Website
By accessing this link, you will be leaving the Credit Union’s web site and entering a web site hosted by another party.
Although the Credit Union has approved this as a reliable partner site, please be advised that you will no longer be subject to, or under the protection of, the privacy and security policies of the Credit Union’s web site. The other party is solely responsible for the content of its web site.
We encourage you to read and evaluate the privacy and security policies on the site you are entering, which may be different than those of the Credit Union.
