Choosing a home equity loan should be easy.  You’ve got equity in your home.  Your credit is good.  You can afford the payment.  What’s the big deal?  The truth is, all home equity loans are not the same, and some lenders advertise rates or terms that very few borrowers qualify for, only to switch you into higher rates or less favorable terms somewhere during the process.

Understanding the essential features of home equity loans empowers homeowners to make informed decisions. Metro Credit Union offers competitive HELOC rates and flexible options tailored to your financial goals.

Understanding Home Equity Loans

Most homeowners have some amount of equity in their homes.  Your equity is the difference between your home’s value and the balance you owe on your mortgage (ex. Home Value $300,000 – Mortgage Balance $200,000 = Equity $100,000).  The equity in most homes increases over time as the home’s value increases while the mortgage balance gets paid down.  Many times, borrowing against this equity (as opposed to getting an unsecured or other types of the loan) allows for larger loans, lower payments, better interest rates, or all three.  Knowing which factor (amount, payment, or rate) is most important to you can guide you to the best option. Home Equity Loans have traditionally come in two types: Home Equity Lines of Credit (HELOCs) or Fixed-rate/Fixed-term Home Equity Loans.

Home Equity Lines of Credit (HELOCs)

The biggest advantages of HELOCs are that you can borrow against the Line of Credit, repay it, and borrow again, multiple times during the term of the loan.  You only pay interest on the amount of the credit line you use, and the payments are usually lower.  The biggest disadvantages to HELOCs are that they have variable interest rates, and some borrowers may have a balloon payment due at the end of their term.

Fixed-rate/Fixed-term Home Equity Loans

Fixed-rate/Fixed-term Home Equity Loans offer a known interest rate and payment that pays the balance down to zero during the term of the loan.  However, you only get to borrow one time at the beginning of the loan, so if your plans change, you’ll have to refinance and get an entirely new loan, and the monthly payment is usually higher.

Understanding Loan-to-Value (LTV)

Lenders have a maximum loan-to-value (LTV) they will allow for your home equity loan.  That means you cannot use all the equity in your home.  The problem is that too conservative a lender may not let you use enough of your equity for your needs.  Some lenders have a maximum LTV of 80% combining your primary mortgage and your new home equity loan.  In the example above, the lender multiplies .80 x $300,000 Home Value = $240,000.  So, with this lender, you cannot use $60,000 of your $100,000 in Equity.  If you have a $70,000 remodeling project, you cannot borrow enough from this lender regardless of the terms or rates or type of loan you get.  However, if you find a lender with a 90% maximum LTV, you can borrow up to $70,000 for your project (.90 x $300,000 = $270,000). As maximum LTVs go up, so does the risk to the lender.  So, sometimes higher LTVs come with higher interest rates, but that isn’t always the case; some lenders just have better deals. Another problem you can run into is when a lender advertises a great rate, but when you get there, you find out they have a maximum LTV of 80%, and you can only qualify for that special rate if your primary mortgage is paid completely off.  Instead of going back to the drawing board, many borrowers just sign for a higher rate.

How a Home Equity Line of Credit Can Benefit Homeowners

Using a home equity line of credit wisely can lead to long-term financial benefits. Many homeowners use these loans for home renovations, energy-efficient upgrades, major home repairs, or debt consolidation. Investing in home improvements can increase property value, making it a strategic way to grow wealth.

For those looking to consolidate debt, a low-interest HELOC can replace high-interest credit cards or personal loans, reducing overall interest costs. Since home equity interest rates are typically lower than other types of borrowing, this can result in significant savings.

At Metro Credit Union, we provide loan solutions that align with financial goals, whether it’s funding a remodeling project, covering emergency expenses, or securing a more favorable interest rate.

Save time, money and frustration – Call Metro Credit Union first

Why go through the hassle of calling around and hoping different lenders are telling you everything?  Call Metro Credit Union and speak to a Personal Banker about the right Home Equity Loan option for you.  Get the LTV option that meets your needs with some of the best rates and terms available.  And best of all, at Metro Credit Union we work for you, so you don’t have to be a lending expert. Metro Credit Union Mortgage is the home lending side of Metro Credit Union. Buying your first home is a big step, but it doesn't have to be a scary one. The more you know about the home buying process, the more confident you'll feel about making these important decisions that will shape your future.

Use our financial calculators for calculating a mortgage or refinance.