Apply for prime rate Home Equity Loans!

With interest rates on the rise and home prices continuing to escalate, many homeowners are opting to improve the home they're in now--whether it's adding additional rooms, remodeling existing rooms, or simply painting the exterior. Others may just want to consolidate debt or take a much needed vacation. To help them do this, people are using the equity in their home to obtain a Home Equity Loans or Line of Credit (HELOC). Because this is a secured loan, its interest is less than on many loans such as on a credit card, making it very attractive to homeowners. There are many lenders offering such loans, but in order to maximize your money, it is important to get the loan that's best for you.

How do I know how much equity I have?

To figure out how much equity you have in your home, use this simple equation:

Appraised Value of Your Home:  $500,000
Mortgages You Owe:             $400,000
Available Equity:              $100,000
Loan to Value Ratio (LTV):     80% LTV

In this example, if you went to a lender that loans on 80% LTV, you may be able to borrow as much as $100,000.

Some lenders will let you borrow 90%, 100%, or even 125% of your available equity. Be cautious of 125% LTV loans--when you sell your house, you will need to come up with the extra money to pay off this loan.

What is the interest rate?

Interest rates on HELOCs vary. Some lenders offer rates based on a T-Bill index, while others may offer them based on the Prime Rate. Lenders may even charge you points on the loan. Rates may be based on your credit worthiness as well. Shop around and find the best rate for your situation. You'll find that some lenders may offer Prime + .25% or Prime + .50%. This means your rate will be whatever the current prime rate is, plus an extra quarter or half a percent. But you may want to look at the lender's overall HELOC program, which may include fees and terms. And remember, as the Prime Rate or T-Bill rates change, so will the interest rate on your HELOC.

Will I pay fees on my HELOC?

This varies from lender to lender. Some may charge an annual fee and/or application fee, some may not. Some may charge you closing costs, while some may not under certain conditions. As with rates, shop around before you apply for a loan.

Can I deduct the interest I pay?

This depends on your financial situation. Always check with your tax advisor to see if you are able to deduct the interest.

What else should I know?

Avoid pre-payment penalties. If you want to pay off your loan ahead of time, you should not pay a fee to do so. A 10% prepayment fee is not uncommon ... but is a lot of money.

Watch out for lowered payments because there is a balloon payment at the end. Balloon payments are large lump payments due as the last payment.

Avoid rate increases by avoiding missed or late payments.

Matadors Community Credit Union (MCCU) is an example of an organization that offers a Prime Rate Home Equity Line of Credit with features like: Interest-only payments, no points and no pre-payment or application fees, and no closing costs with a minimum $15,000 advance.

MCCU also offers protection against rising interest rates. Many equity lines have ceiling rates of 18% or more. At MCCU, your ceiling rate is only 6% above the opening rate.

Marnie Nemcoff is Vice President of Marketing for Matadors Community Credit Union (MCCU), a not-for-profit full service financial institution that has been serving the San Fernando Valley since 1963. Member accounts at MCCU are safe and secure; they are federally insured up to $100,000 by the National Credit Union Administration (NCUA), an agency of the U.S. Government. MCCU does business in accordance with the Federal Fair Housing Law and the Equal Credit Opportunity Act.

For more information regarding Home Equity Loans, call MCCU at [phone] or visit www.matadors.org.