Put Your Home to Good Use

The equity in your home (the value of your home minus what you owe) is a good source of low-interest funds for big purchases. Consider a home equity loan or a home equity line of credit to generate cash if you need to finance home improvements or have a major expense. The interest you pay may be tax deductible.

There are two types of home equity loans: close-end and open lines of credit. They are secured by your property just like your original mortgage.

A home equity closed-end loan provides you with a lump sum of money, the amount that you qualified for or requested. That money needs to be paid off over a set period of time at a fixed rate of interest.

A home equity line of credit, or a HELOC, works like a credit card. You can borrow up to a certain amount of money for the duration of the loan. During the loan period, you can withdraw money from your line whenever you need it. As you pay down your principal, you can use it again.

Here are two examples of how you could use each loan type:

A closed-end home equity loan may be right for you if you are installing a solar heating system. The job can be completed in a week. It will cost $10,500. You know the price of the project and when payment is due.

A HELOC would be right for you if you are finishing a basement and you will have multiple checks to write over an extended period of time. You’ll need someone to install and finish the walls, run the electric and plumbing, lay the carpeting, and do the finish carpentry. This type of project could take several weeks to complete, and involve several vendors at various stages.

Closed-end loan or HELOC? If you have a major project or expense coming up, either one may be what you need to cut it down to size.

Maria Scianna is a Consumer Loan Supervisor at Hudson Valley Federal Credit Union. She can be reached at 845-463-3011.