Put Your Home Equity to Work

If you're a homeowner, you work hard to pay for your home. Maybe it's time to put your home to work for you - with a home equity loan or line of credit.

With a home equity loan or credit line, the equity you've built serves as collateral. Equity is the difference between your house's market value and the amount outstanding on your mortgage. So, if market value is $150,000 and NMFCU allows you to borrow an amount equal to 80% (or $120,000 in this example) and your mortgage balance is $100,000, your equity would be $20,000.

You can use a home equity loan or credit line to borrow for home improvements, college tuition, a new vehicle, a vacation, medical bills, a family wedding, starting a home-based business, and any number of other major expenditures.

Borrowing with a home equity loan or credit line offers two key benefits:

The interest rate will be lower -- usually much lower -- than what you'd pay on a credit card or personal loan. The lender can offer you a lower rate because your house secures the loan or credit line.

The interest you pay on a home equity loan usually is tax deductible, which further reduces the cost of borrowing. You get no such deductions for interest paid on credit cards, car loans, and personal loans. Generally, if you itemize deductions rather than take the standard deduction, the interest is deductible on a home equity loan or credit line of up to $100,000, or $50,000 for married couples filing separately. Deduction guidelines can get complicated, however, so consult your tax adviser to find out what deductions you can take.

When borrowing on home equity, you have two credit forms to choose from:

A home equity loan is a lump sum you borrow at a fixed or variable interest rate. You'll pay back the loan over a 5- or 10-year period, but the loan term might range from five to 15 years. If it's a fixed-rate loan, which is most common, your monthly payments stay constant throughout the loan term.

A home equity credit line is an open credit line you can draw on as needed, up to a preset limit. Usually a home equity line of credit carries a variable interest rate tied to some sort of index, such as the prime rate. As you pay off past borrowings, you replenish the credit line up to your dollar limit. You can tap a home equity line of credit again and again (up to five years), without having to reapply for a loan each time you borrow.

Call Ryan at (763) 520-7027 or Bud at (763) 520-7577 for help deciding which form of home equity borrowing is best for you. The answer usually depends on how you plan to use the funds.