Using Home Equity Loans and Lines of Credit to Your Advantage

by Steve Nicastro 19. May 2014
Home Equity Loan and Lines of Credit

If you have equity in your home, now could be the time to use it to your advantage in the form of a home equity loan or home equity line of credit. These loans tend to come with low interest rates and can provide several tax advantages—benefits that credit cards do not provide.

Whether you are looking to renovate or repair your home, consolidate debt or pay for another major expense, taking out a loan against your equity can prove to be a savvy financial decision.

Differences between a home equity loan (HEL) and home equity line of credit (HELOC)

Before you even think about getting a HEL or HELOC, you need to understand the differences between both to figure out which is better suited for you.

With a HEL, you are basically taking out a second fixed mortgage on your home. You’ll receive a lump sum when your loan closes, and you’ll be required to make fixed monthly payments, just like you would on a 30-year fixed mortgage. Your payments will be predictable. They’ll be exactly the same each month, since the interest rate on the loan is fixed. At 1st Mariner, the period of repayment can be anywhere from 5 to 15 years. The longer the loan, the lower your payments but the more you’ll pay in interest.

A HELOC, on the other hand, is a revolving line of credit, which works more like a credit card. A HELOC comes with a variable interest rate and allows you to draw down funds whenever you need to. You’ll have a credit limit and you’ll be able to borrow up to the limit, and you’ll have a minimum payment due each month.

The one downside to a HELOC is that it carries a variable interest rate. If rates in the market were to rise, your payments can also rise.

Why should you use a HEL or a HELOC for a home remodel?

Making home improvements with a home loan can make a great investment if it increases the value of your home beyond the cost of the renovation.

For example, you spend $20,000 for a full kitchen renovation, but your home is actually worth $30,000 more when the kitchen is finished. Under this scenario, you’ve received a return of $10,000 or 50% on your investment.

Besides the possible financial returns, these improvements can make your home a nicer and more comfortable place to live for your family.

If you’re going to make improvements to your home no matter what, a HEL or a HELOC are almost always a better option than credit cards or a bank loan. The interest rates on both home loans tend to be far lower than those on credit cards or bank loans, since these loans are secured against your home.

In addition, the interest you pay on a HEL or a HELOC can be tax deductible. You should consult with a tax advisor for more information.

Should you go with a HEL or a HELOC for a home renovation?

As mentioned, a HEL is better for someone who needs the money for a one-time expense since you’ll know exactly how much you’ll need to borrow. A HELOC works better for someone who might not need a specific amount of money, but needs access to that money over a period of time.

Whether or not you choose a HEL or a HELOC to fund your home renovation depends on a few things. First, do you know exactly how much money is required for the project and the time it will take to complete it? If this is the case, a HEL might be your better option. If the project will be ongoing and the total costs are uncertain, you might want to go with a HELOC instead, but you should make sure you have the credit limit available to complete the renovation.

You can use the equity in your home to your advantage by following these tips. Just remember that anytime you take out a HEL or a HELOC, you are using your home as collateral for the loan. So if you can’t make the payments, you risk losing your home. For this reason, it’s vital to make sure you can absolutely afford the loan before making any decisions.

Steve Nicastro is a financial writer for NerdWallet.com. Previously, Steve was a local editor at Patch.com and a contributor for Seeking Alpha and GoBankingRates. He covers topics such as investing, credit cards, and insurance.

Finance Your Renovations with a Home Equity Loan or Line of Credit
If you found this article useful, be sure to check out these related articles:

How to Decide: Home Equity Loan or Line of Credit?

5 Home Improvements That Add Value

5 Inexpensive Ways to Improve the Look of Your Home

Chazz: A Slice of Baltimore

by Stacy Tharp 16. May 2014

Chazz Coal-Fired Pizza Oven

Today is the final day of National Small Business Week, and last but not least, we’re highlighting Harbor East’s Italian restaurant, Chazz: A Bronx Original. I had the pleasure of speaking with owner Alessandro Vitale while dining at Chazz last week.

Vitale partnered with Oscar-nominated actor Chazz Palminteri to open the restaurant three years ago. Choosing Baltimore’s Harbor East location was a clear choice for Vitale since he was born and raised in Baltimore and has watched the area grow over the years with new businesses and residents. Chazz is only a few short blocks from the Vitale family restaurant, Aldo’s of Little Italy.

A large part of what sets Chazz apart from the slew of other Harbor East restaurants is its coal-fired pizza oven. This type of oven is commonly found in Italy and New York, but is difficult to come by in Baltimore.

Vitale’s commitment to Baltimore doesn’t end with his restaurants. He banks locally with 1st Mariner because he believes that people at a local community bank “know the roots and community.”

“It’s all about the people and the relationships,” he says. “[1st Mariner employees] are my customers too. They know my product, they know me and they know my needs.”

So the next time you’re in the Harbor East area, stop by Chazz and see for yourself what all the hype is about. I’m speaking from experience when I say their coal-fired oven makes their pizza stand out from the crowd. And don’t even get me started on the veal meatball! Just order it. You can thank me later.

Bank Jargon 101

by Spencer Tierney 15. May 2014

Bank Jargon

Whether you just opened your first checking account or want to know all that’s on offer at your local branch, it’s wise to learn the language spoken by your bank. Consult the following list to upgrade your banking vocabulary.

CD

A certificate of deposit, or CD, is a savings product offered by financial institutions. It earns a higher interest rate (see below) than a regular savings account, but that comes in exchange for locking up your money for a specified period of time, from a few months to a year or more. Withdrawing money before the term is over will result in penalty fees. Be aware that there are fixed CDs and “flex CDs.”

How it is relevant to you: A CD can be a useful mechanism for long-term, recurring savings. One strategy to use when managing CDs is a CD ladder, which involves reinvesting short-term CDs into longer terms.

eStatements

An eStatement is an electronic copy of your account statement, delivered to you via email. Many consumers have switched from the traditional, mailed statements to eStatements for the sake of convenience and security.

How it is relevant to you: You can download and save your statements to view whenever you want. And they’re safe, since they won’t get lost in the mail or stolen from your trash.

Interest

Interest refers to the charge that comes with borrowing money (such as on credit cards and loans), or the profit that is made from loaning or depositing money (such as in saving accounts or CDs). There is no uniform rate across banks. However, the national average rates can give you a sense of the trend.

How it is relevant to you: It’s important to understand interest rates to see if you are taking full advantage of your savings products—or paying too much on your credit cards.

Money Market Account

A money market account is an account that generally offers a higher interest rate than a savings account but also requires a significantly higher balance to maintain. This type of account provides you with limited ability to write checks.

How it is relevant to you: Unlike with a CD, you have the opportunity to make a limited number of withdrawals from your account.

Overdraft

When you try to make a transaction that exceeds your balance—say, you try to use your debit card to buy a $200 smartphone but there’s only $100 in your account—your bank will do one of two things: (1) decline the transaction or (2) let it go through, causing you to “overdraw” on your account. In this second scenario, your account balance is now in negative territory, and your bank will charge you an overdraft fee. An overdraft can also happen when attempting to withdraw money from an ATM or writing a check.

How it is relevant to you: Keep a close eye on your account balances, because overdraft fees are expensive and can add up quickly.

Wire transfer

In much the same way as email moves a letter from one person’s computer to another’s electronically, a wire transfer moves money from one person’s account to another person’s account electronically. This can be done when people have accounts at different banks or at the same bank. Wire transfers are expensive due to typically high fees charged by banks to both parties. If the money is needed right away, consumers should know that banks send out wire transfers at certain times of day, and you could miss a cut-off time.

How it is relevant to you: Wire transfers are often used for large purchases, such as the down payment on a home.

Spencer Tierney is a staff writer for NerdWallet, where he covers all aspects of personal finance.

If you found this article useful, be sure to check out these related articles:

Establishing Credit for Beginners

April is National Financial Literacy Month

Home Equity Loan or Home Equity Line of Credit?



© 2008- 1st Mariner Bank