7 Things to Consider with Home Equity Loans

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By Paul Mulligan, Senior Vice President

There are many situations homeowners may require an influx of cash. If they’ve built up equity in their homes (if the home is worth more than what they owe on it) a home equity loan may be an attractive option. While a home equity loan may seem like a great idea, depending on how you plan on using the cash could determine whether it’s the best option for your needs.  Here are several things to consider if you’re thinking about taking out a home equity loan.

Understand the risk – With a home equity loan, you’re putting your home up as collateral. This means that, if you default on the loan, your lender can take your home to satisfy the debt.  For instance, taking out a home equity loan to pay off unsecured debt, like high-interest credit cards, may seem like a good idea – and it may be, if you’re able to make your payments.  But, if something happens and you’re unable to satisfy your loan terms, you may end up in a worse situation than just having credit card debt.

Repayment strategy – Make sure you have a reasonable repayment plan in place.  If you’re planning on using variable cash flows – like raises, commissions, or bonuses – make sure you have a backup plan in case your cash influx is smaller than expected.  It may help to create a detailed table with monthly income and expenses, including discretionary spending that might need to be limited in order to be able to pay off a loan.

Total loan cost – Always make sure you are fully aware of the total cost of your loan, including interest payments, closing costs, loan insurance, prepayment or other penalties, variable payments or interest rates, and any other hidden fees or costs that might impact your total loan cost or your ability to pay it off.  Knowing how much the loan will cost you will impact your decisions.

Tax implications ­– One of the benefits of home equity loans is their status as tax deductable interest.  But, the Tax Cut and Jobs Act of 2017 applies new restrictions to when home equity loan interest can be claimed as a deduction.  More specifically, under the new regulations, interest on loans used to significantly purchase, build, or renovate a home may be tax deductible, whereas non-property-related uses of loans are not. (Contact your tax advisor for specifics.)

Plan ahead – Regardless of what you’re planning on using your home’s equity to fund, give yourself plenty of time.  While good candidates may have a fairly easy time getting a home equity loan, it’s not as simple as pulling up to an ATM and withdrawing cash.  While emergency situations may arise, give yourself as much time as possible to get a loan approved.  Lenders will run credit checks and may require home appraisals, creating a delay between your initial loan application and when funds are made available to you.

Consider your options – Technically, borrowers may use the funds for whatever they need them for, but it’s worth considering all the options depending on your needs.  Home improvements tend to be looked at as a high-value loan because you’re actually increasing what your home is worth.  Many people look at home equity loans as a way of paying for their children’s college tuitions, new vehicles, medical bills, consolidating debt, or other expenses.  Consider your options for any of your needs; your bank might have different loan products that are better suited for different needs.

Regardless of your needs, make sure you consult a loan specialist before making a decision that will impact your finances and life for years to come. The Milford Bank has consultants ready to answer your questions and discuss the best loan options for your unique financial needs.

 

 

 

Home Equity Loan vs. HELOC – Which One is Right for You?

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By Paul Mulligan, Senior Vice President

One of the benefits of owning a home is the ability to use built up equity to finance other cash needs with a Home Equity Loan or a HELOC. Some of these uses carry more value than others – and some carry more risk.  Because of that, potential borrowers should do their due diligence and consider all aspects of these loan products before making a decision to put up their homes as collateral. Click HERE for 7 Things to Consider with Home Equity Loans.

That includes understanding different loan alternatives and how they may benefit your needs for cash, like the difference between a home equity loan and a home equity line of credit (HELOC). While they are similar and both use the home as collateral, they are designed differently and can end up with different total cost of loan figures.

Home Equity Loan

A home equity loan provides borrowers a single, lump sum of cash that must be paid back over a specified period of time at an agreed interest rate. It’s similar to a first mortgage in that payments are a known constant and go towards both interest and principal.  With home equity loans, you are paying off the full amount of the loan plus interest.

Home Equity Line of Credit (HELOC)

A HELOC is a revolving line of credit with a predetermined limit. Think of a HELOC almost like a home equity credit card that gives borrowers access to a cash reserve they can draw upon for whatever needs they may have.  The line of credit remains active for a specified period – up to 10 years, depending on the lender.  While the line of credit remains open, borrowers pay back interest; once the draw period is over, payments typically increase and include both interest (only on the amount withdrawn) and principal (the amount withdrawn) payments.

Lenders may offer customers different options for accessing funds, and they may have minimum withdrawal amount policies or require a minimum outstanding balance. Make sure you are aware of all details of your loan before signing the paperwork.

Which is better?

This is a question each borrower has to answer based on his or her circumstances.  Home equity loans tend to be useful for large projects – like home remodels – that require a large payment at one time, or for situations where the amount to be borrowed is known.

HELOCs are good options for borrowers who need access to smaller amounts of cash over a period of time – such as for a number of smaller projects over the course of several years, or when the total amount required may not be known.

Interest Rates

Home equity loans typically have fixed rates, which means payments will be the same for the duration of the repayment period. HELOCs usually are variable rate loans based on Prime Rate or some other standard index plus a margin.  HELOCs may come with a lower introductory rate that increases – along with monthly payments – once the introductory period expires. Check with your lender for current rates.

Closing costs

Both HELOCs and home equity loans typically include closing costs that may also include additional fees for appraisals, insurance, loan processing, attorney fees, and more. Be sure to ask your financial specialist what fees you can expect with either type of loan and whether any additional fees may apply under certain conditions, such as early repayment, or with each withdrawal from a HELOC.

The bottom line is that both home equity loans and HELOCs allow homeowners to tap into the equity in their homes to finance other needs. What those needs are and whether either of these two is a good option is something a loan expert at your financial institution can help determine.  Regardless of what option you choose, be sure to shop your loan needs around to get the best terms, but be sure to ask as many questions as possible to determine the total cost to you over the loan period.  Also make sure repaying the loan doesn’t exceed your monthly budget.  If you are unable to pay back the loan, you’ll be putting your home at risk.  But, with the right planning and advice from a financial expert, home equity loans and HELOCs are both great options for taking advantage of the equity you’ve built up in your home.

If you’re considering a second mortgage, The Milford Bank has several loan products that may be ideally suited to your needs. Contact our loan experts today to discuss your specific needs and make sure you have all the information you need to make an informed decision.

How Milford Bank Keeps Customer Deposits Secure

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By Jorge Santiago
Executive Vice President

Every day, millions of people make bank deposits without fear of fraud or identity theft. That’s because banks have worked hard to secure deposits wherever they are made—at an ATM, in a branch, or using a mobile device. The Milford Bank goes above and beyond to ensure that all deposits go through security and fraud detection processes in order to protect your deposits.

One of the most effective forms of security protection The Milford Bank provides is duplicate detection. Duplicate detection allows The Milford Bank to review deposits that have been flagged due to repetitive entries or fraudulent behavior. The system flags the transaction based on set criteria and prevents the deposit from being processed until corrected.

Similarly, unusual behaviors and amounts that have identical qualities to a previously deposited check will be caught during the duplicate detection process. This type of security detection is applied on multiple levels: deposit channel, banking management, and software systems. A strict reviewing process occurs when a deposit is made at a deposit channel.

After the deposit is made, management then verifies each transaction. The deposit is then sent through a fully hosted web portal that secures the deposit and stores the data for comparison against previous and future deposits. Deposit data is maintained for at least 90 days in cases of reconciliation. Therefore, fraudulent behaviors are minimized.

As a result of The Milford Bank’s multi-layer security process, deposits are thoroughly tracked from all deposit channels. This is part of The Milford Bank’s focus on prioritizing the security of its customers and their funds. Customers should rest assured knowing that The Milford Bank provides a highly secure banking experience for its customers.