How to Pay for It: Home Equity Line of Credit vs Other Options

by Kathy Passman 12. October 2016

How to Pay for It: Home Equity Line of Credit vs Other OptionsWe’ve all heard the stories about people, before the 2008-’09 financial crisis, using their homes as “ATMs.” I’m talking about homeowners using the equity in their homes to pay for luxuries – jewelry, vacations, even cosmetic surgery.                          

We were talking recently about his relationship with his bank. And when I asked him what questions he asks whenever he’s vetting a new bank, his answer intrigued me.

That’s poor financial management, and a lot of those folks got themselves in real trouble.

Today, most homeowners seem to have learned that lesson. I rarely hear about abuse of home equity lines of credits (HELOCs) or home equity loans anymore. Instead, when homeowners do take out a HELOC, too many of them use it solely as an emergency fund.  
 
But this approach many not be the wisest choice for your money, either. There is, in fact, a middle ground between abusing the credit your home equity affords you and using it wisely.

What Is a HELOC?

A HELOC is different from a home equity loan, in which you get a lump sum amount, then pay it back according to a schedule. A HELOC makes a percentage of your home’s value available for five to 10 years, and its interest rate adjusts with the market (meaning they’re usually very low). When it expires, you only pay for what you’ve used – then it disappears with no additional expenses.

But, like a home equity loan, any interest you pay on a HELOC is treated like mortgage interest, which means it’s tax-deductible. Remember to consult your tax advisor when it comes to tax-deductibility.

Any loan or line of credit carries some risk, and a HELOC, for which you use your home as collateral, is no different. But if you are savvy and conservative, a HELOC is a safe and secure way to pay for a number of life’s major expenses. Let’s take a look at a few of them…                               

College Tuition

Because the interest rates are usually lower than those on student loans, using a HELOC to pay parts of your child’s college tuition could be a good option. Compare interest rates and closing costs to see if a student loan or a HELOC is cheaper for you.

Home Improvements

HELOCs were designed to be used for home repairs and renovations. And that’s still the primary reason homeowners take them out. However, we recommend you use a HELOC primarily on improvements that increase a home’s value. That way, any interest you pay will return to you when you sell your home.

A HELOC is also good for financing essential repairs that may not raise the value of your home but will upgrade its safety and/or structural integrity. In this case, I’m talking about fixing a leaking roof or replacing faulty wiring. 

For other home improvements, such as interior design and landscaping, tap your cash savings (though not your emergency fund). Or, put it on your credit card and pay it off at the end of the month. That way you can insure the equipment you buy — and pick up some points. 

Emergency Fund

Everyone should keep an emergency fund to cover unexpected health bills, car repairs, and home repairs. Where you keep that emergency fund depends on your situation and financial philosophy. Some people believe that any money that isn’t “working for them” is useless. They keep their emergency fund in an easily accessible interest-paying savings account.

However, the interest rates on savings accounts are pretty measly these days. And so, you might be better off piling most of your cash into a stock market index fund. It’s not very sexy, but it earns more than a savings account. Then, use your HELOC as your emergency fund.

Consolidating Debt

Besides what you pay off at the end of every month, do you have any credit card debt? If so, get rid of it. Use your cash to pay off what you can, and then pay down as much as you can of the rest using a HELOC. Home equity lines of credit charge much less interest than credit cards, so you’ll be saving money. Plus, unpaid credit cards hurt your credit score and, therefore, your chances of getting loans in the future.

If you consolidate debt using a HELOC, you’ll get out of debt faster thanks to those lower interest rates. Plus, you’ll essentially be paying yourself rather than Visa or MasterCard.

If you’re ready to apply for a HELOC, or to talk more about the best ways to use a HELOC you already have, please contact us.

1st Mariner Bank’s Summer of Service

by Erica Starr 21. September 2016

As Baltimore’s favorite community bank, 1st Mariner takes great pride in serving the needs of our friends and neighbors, whether that’s inside our branches or out in the community.

This summer, we’ve enjoyed several opportunities to get out and about and give back. While we’re sad to see summer go, we’re looking back fondly on great memories of a summer of service. 

Angel Park

In July, the 1st Mariner team participated in the Community Build program at Angel Park, a very special facility being built in Perry Hall, Md.

The all-inclusive playground and amphitheater will serve as a new center of the community, offering a memorial garden for calm reflection, fun and unique play equipment for children of all abilities, and a place for local artists to share their talents—all in memory of Ryan Szczybor, the baby boy who lost his battle with leukemia at just 15 months old. His parents Kelli and Andy are the masterminds behind Angel Park, and they have brought the entire Perry Hall-area community, businesses, families and individual volunteers together to make their vision a reality.

1st Mariner was honored to help build sandboxes and other playground equipment and we look forward to bringing our families back to enjoy Angel Park when construction is complete.

Ellicott City

After historic floods devastated Ellicott City on July 30, 1st Mariner was eager to help businesses and neighbors rebuild. To help support flood victims in their efforts to rebuild, we partnered with Kelsey’s Restaurant and Irish Pub in Ellicott City to organize a fundraiser, complete with a silent auction. Ten percent of all sales at Kelsey’s from the entire day of August 9 went to the Ellicott City Partnership, along with 100% of proceeds from the silent auction, which featured Joe Flacco-autographed merchandise. All together, we were able to raise nearly $5000 to support the Ellicott City community as they rebuild.

FOP’s Night at the Yard

At the Maryland Fraternal Order of Police Conference this August, 1st Mariner was honored to have the opportunity to host a happy hour event at Oriole Park at Camden Yards. We’re grateful to our police officers and their families for all the sacrifices they make to keep us and our loved ones safe each and every day. We felt it was important to show this gratitude and enjoyed the chance to get to know and say thank you to many officers in person, and together, cheer on our Baltimore Orioles!

It’s been a great summer, and while these were just a few highlights of our Summer of Service, we’re thankful to have had these wonderful opportunities to serve our neighbors and communities. We’re looking forward to lots more this fall, so stay tuned! We hope you’ll join us in giving back.

Vetting a New Bank for Your Business? Ask These 4 Questions

by Elizabeth Sherman 16. September 2016

I have a friend who researches everything to the Nth degree. He dives deep and never lets a penny get by him. You probably have a friend just like him. (If you’re smart, you are him.)                         

We were talking recently about his relationship with his bank. And when I asked him what questions he asks whenever he’s vetting a new bank, his answer intrigued me.

His most important query wasn’t about the bank’s services or its lending process. “Those are questions I ask, of course,” he said. “But really, here’s what I want to know: Am I going to be able to get in touch with you? And how do I get in touch with you? Do I get your phone number and email, or do I have to make my way through a phone tree?”

I got what he was saying. He was asking about what kind of relationship he could expect to have with his bank. Would it be hands-off or collaborative? Would he work with an individual, a team, or a machine. 
 
And so, in the spirit of my friend’s questions, we’ve put together this list of Top Questions to Ask Your Banker. You’ve checked the bank’s interest rates and branch locations, and you likely are ready with some inquiries specific to your situation – but these are four questions you should always ask.

“What will our relationship be like if I bank here?”

As my friend’s passion demonstrated, he thinks it’s essential to have an advocate at your bank. If you agree, make sure you’ll be assigned a relationship manager, and clarify how they’ll handle your business. Will you meet regularly at the bank or at your business? Will you be able to get your relationship manager on the phone quickly?

Your advocate can guide you through the loan process. They can let you know about important new products and answer questions about them. They’ll give you news about the bank before you hear about it on social media or the evening news.

Nail down how easy it is to get in touch when you need to – and typical response time to such queries. Be assured that your phone calls and emails will be answered quickly.                              

Plus, that relationship shouldn't end at the bank itself. Community banks can help you connect with the local business circle. Those sorts of connections can lead to customers, advisors, contractors, and even other lending options.

Finally, don’t just take the bank’s answer to these questions for granted. Seek out your peers and grill them about their relationships with their banks. Let that lead you to a great choice.

What Is Your Lending Process for Businesses Like Mine?

It’s tough to get a loan. Community banks are approving only about half of their loan requests. Big banks are even more daunting; they approve just 21 percent. So before applying, you want to know that the process is simple and straightforward. If it’s not – if the banks starts obfuscating before you even submit an application – walk on. Here are three things you should determine before you get started …

  • Does your company qualify for the loans this bank offers? Many banks won’t loan to businesses under a certain size, or that have less than a three-year track record, or that are seeking a loan of less than $5,000.
     
  • What is the lending process? What financial records and tax records are required? Will there be interviews, and to whom will you speak? Is the decision made locally?
     
  • What’s the timeline? How long does the approval process take after you apply?

Most importantly, find out whether you will have an opportunity to sit down with bank representatives before you kick off the loan process. This is yet another chance to build a relationship and pick up advocates who can guide you through the lending process.

What Is the Financial Strength of the Bank?

Do some homework before sitting down with a bank representative. First off, don’t even think of approaching a financial institution not insured by the FDIC. Additionally, look at the bank’s ratio of non-current loans to total loans (if it’s above 10 percent, walk away), deposit growth, available cash, and “record” with the FDIC.

Then, when you get in the room with a bank rep, get a feeling for the overall health of the bank. You want to hear – with confidence – that the bank is doing very, very well, that it’s well capitalized, that it’s lending lots of money. Listen for buts. 

What Are the Banking Services I Need Right Now? What Will I Need in the Future?

Have a list of what services you think you need: easy online access, anti-check fraud services, wire transfers, credit lines that cover cash shortfalls, etc. If you’re not sure what you need, then just be ready to discuss your business; a good banking relationship manager should be able to connect you to the right services for you. Also, ask how the bank charges its business customers: Is it à la carte or a full menu?

As for the services you’ll need in the future, your representative should be able to make some predictions but the answer mainly depends on how your business evolves. The important thing here is to start building a relationship. You want to bank with someone who’ll let you know what you need to add – and what you can drop – as your business grows. They’ll also alert you to new services the bank is offering.

Finally, keep an eye on this during the vetting process. If the bank asks you what services you’re currently paying for and, critically, whether you’re using them, that’s a good sign. This is our chance to save you money. If the bank you’re assessing is smart, they’ll want to do just that.

If you have any further questions – or if you want to get started your vetting process – get in touch. 



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