Often referred to as a second mortgage, a home equity loan allows you to borrow money based on the equity you currently have in your home. Equity is the total value of a home minus any mortgage or liens. If you have questions about home equity loans, the guide below will provide you a few of the basics. 

What to Know About Home Equity Loans

Are there different types of home equity loans?

A fixed-rate loan provides a lump-sum payment, which is then paid back with interest over a pre-specified time period. You can also apply for a line of credit, which has a variable rate.

Payments made on a fixed-rate loan remain the same throughout the term, while payments made on the line of credit fluctuate, depending on how much money is withdrawn. 

What benefits do these loans offer?

As a secured debt, where there is collateral to back up the loan, interest rates are often much lower than with unsecured debt like credit cards.

Payments made may also be tax-deductible, depending on how funds from the loan are used. 

What are the risks?

Having your home as collateral can be risky, since any collateral can be taken if you’re unable to pay back the loan according to the terms. You’ll also be subject to closing costs since you’re taking out a second mortgage. 

What do I need to apply?

Providers will evaluate your debt-to-income ratio to make sure you’re able to cover loan payments. You’ll also need a credit score of at least 620 to be approved. Additionally, your bill-pay history will be looked at to determine whether you consistently make payments on time. 

As a respected financial institution with more than nine decades of experience, Armstrong County Building & Loan Association can help you secure a loan with affordable rates. They make their pre-qualification process as easy to navigate as possible, and they also strive to keep closing costs manageable, whether you are applying for a first or second mortgage. Learn more about their products and services online or call (724) 763-7137 to speak with a home equity loan officer today.