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How long is a home equity loan?

A home equity loan is a type of loan that’s taken based on the equity in your home. Credit unions, banks, and online lenders offer home equity loans. The amount of the loan you can get is determined by the difference between your house’s appraised market value and the remaining mortgage balance (if you have a mortgage).
 
For example, if your home is worth $500,000 and you owe $200,000 on your mortgage, you have $300,000 worth of home equity ($500,000 – $200,000 = $300,000).
 
A loan term is the length of time the loan is in effect and the amount of time you must pay off the loan. Home equity loan term lengths vary, depending on the offerings of different lenders. The typical home equity loan term length is from five to 30 years. The longer the loan term, the lower your monthly payments will be because the total loan amount is spread out over many years. A shorter loan term usually means a higher monthly payment.
 
Choosing home equity loan payment terms will depend on your financial goals, the amount you borrow, and the interest rate charged on the loan.
 
At Credit Union of Southern California (CU SoCal), we make getting a home equity loan easier!
 
Call 866.287.6225 today to schedule a no-obligation consultation and learn about our mortgages, home equity lines of credit, auto loans, personal loans, checking and savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all your banking needs.

Get Started on Your Home Equity Loan Today!

What are home equity loans and how do they work?

A home equity loan is a type of credit that lets you borrow money against the equity in your home. The amount of equity you have is determined by the difference between your house’s market value and the remaining mortgage you owe.
 
To calculate the equity in your house or the amount of money you are qualified to borrow, estimate your home’s market value, and subtract your remaining mortgage balance from it to arrive at this amount.
 
For example, if your house is valued at $500,000 and you owe $140,000 for your mortgage credit, and your lender offers you 80% of the home’s loan-to-value ratio, 80% of $500,000 will be 400,000. Subtracting your mortgage amount will give you a value of $260,000. This is your equity—in other words, the most you can borrow.
 
Upon approval of your home equity loan, a lump sum will be paid to you to use any way you choose.
 
What home equity loan terms are available?
Home equity loans come with various home equity loan payment terms. A loan term is the length of time the loan is in effect and the amount of time you must repay the loan. How long are home equity loans? Each lender will offer different options on interest rates and terms; however, the typical range in home equity loan term length is five to 30 years.
 
A home equity loan from CU SoCal is one of the best ways to make the value of your home work for you. Advantages of CU SoCal home equity loans include low competitive interest rates, no appraisal fees, no closing costs, and generous limits up to $250,000. CU SoCal home equity loans have terms from 15 to 25 years.

How to decide between short and long-term home equity loans

Deciding between short- and long-term home equity loan payment terms is straightforward when you consider your financial needs and the specifics of the loans available from the lender you choose.

When to get a short-term home equity loan

If you can afford larger monthly loan payments, then a short loan term will save you money. Short-term loans typically come with a lower interest rate.

When to get a long-term home equity loan

If you need lower monthly loan payments, then a long loan term will help make the loan more affordable. Long-term loans typically come with a lower interest rate.

Pros and cons of home equity loans

As with all financial products there are pros and cons to consider. Here are some home equity loan pros and cons:

Pros

• Lower interest rate. Home equity loan interest rates are lower than credit card rates and other types of loans.
• Fixed interest rate. Your interest rate will be fixed for the duration of the loan term.
• Easy application process. Apply online or in-person.
• Relatively fast approval. Generally, wo weeks to two months.
• Loan interest may be tax deductible. According to the IRS, for tax years through 2025, if home equity loans or lines of credit secured by your main home or second home are used to buy, build, or substantially improve the residence, interest you pay on the borrowed funds is classified as home acquisition debt and may be deductible, subject to certain dollar limitations.

Cons

• Higher interest rate than a HELOC. Home equity loans tend to have a higher interest rate than home equity lines of credit, so you may pay more interest over the life of the loan.
• Your home will be used as collateral. Failure to make on-time monthly payments will hurt your credit score. If you default on the loan, the lender can take possession of the home through foreclosure.
• Closing costs. Most home equity loans have closing fees, which may include an application for loan processing fee, appraisal fee, origination or underwriting fee, lender or funding fee and recording fees, to name a few.
• Two mortgage payments. Whether or not you use the money given to you in a home equity loan, the lender will expect you to pay monthly interest on the total loan amount. If you have used any part of the loan, your monthly payment will include interest and principal. 

How do home equity loans compare?

Here’s how home equity loans compare to other common types of loans:

Home equity loan Vs. HELOC

Home equity loans differ from home equity lines of credit in their interest rates; the former has a fixed rate while the latter has a variable rate. Moreover, the home equity plan allows you to repay the lump sum amount of money provided to you in 5-10 years. On the other hand, HELOC provides revolving credit that can be paid in 10-20 years.
 
Home equity loan Vs. cash-out refinance
Getting cash through a mortgage refinance requires that homeowners get a new mortgage at a new interest rate. If you have a low interest rate that is lower than the current interest rates, you’ll save more by keeping your current rate. Closing costs can be high, which makes getting cash more costly as well.

Home equity loans Vs. personal loans

A personal loan is a loan granted to an individual based in their creditworthiness (not collateral), sometimes called an “unsecured loan” (since no collateral is used to secure the debt). Personal loans can be used for anything but are typically used for starting a business, paying medical bills, consolidating high-interest debt, or paying for a wedding or college tuition. Home equity loans can be used for these same purchases, the main difference is that a home equity loan is a “secured” loan that uses your home as collateral.
 

Is taking out a home equity loan worth it?

Getting a home equity loan means taking on new debt that is secured by the equity in your home. Making purchases and payments using cash is usually the safest option if you can do so without neglecting your other financial responsibilities. Overall, a home equity loan may be worth it if you can afford the monthly payments. Failure to repay a home equity loan or missing loan payments can result in your home being foreclosed on by the lender.
 
Before you commit to a home equity loan be sure you really need the money.
 
How to get a home equity loan
Applying for a home equity loan is easy. These are the basic steps:

1. Comparison shop lenders. Start with your local credit unions and banks. Compare interest rates and terms.
2. Prepare your documents. You will need to provide proof of your identity, as well as proof of employment and income, and a list of your monthly debt payments.
3. Apply for the loan. You may be able to apply online and upload the necessary documents. Or you may go in-person to apply.
4. Consent to a credit score check. During the application process your credit score will be checked by the lender to make sure you have a reliable payment history on your current mortgage and other debts. Having a good credit score opens the door to getting a lower interest rate on loan.
5. Order a property appraisal. Most lenders will require an appraisal to determine the value of your home. The loan amount will be based on this value.
6. Equity calculation. Using the appraisal findings and other factors, the lender will calculate the equity in your home to determine how much you can borrow.
7. Receive your funds. Once approved for the loan the money will be deposited into your checking or savings account.

FAQs

How much can you borrow on a home equity loan?

The amount of a home equity loan you can get will largely depend on how much equity you have in your home.
 
What can a home equity loan be used for?
Home equity loans can be used for a variety of things; however, home equity loans should be used for making purchases that increase your home’s value or improve your financial situation. Some examples of home equity loan uses include home renovation, paying emergency medical bills, renovating your home, or paying off high-interest debt.

How long does it take to get a home equity loan?

It can take two weeks to two months to be approved for a home equity loan.

Can I refinance a home equity loan?

Yes, you can refinance a home equity loan. The most common reasons for doing so would be to get more money to fund a home renovation project, reduce the interest rate of your current home equity loan, or change the term (duration) of the loan.

Do you need an appraisal for a home equity loan?

Most lenders require that a property appraisal be performed as part of the loan application process. The appraisal will tell the lender the value of the home. This is one way that lenders protect themselves from financial risk. If the borrower doesn’t repay the loan the lender can foreclose, take possession of the home, and sell it to recoup the money that was loaned to the borrower.

Does a home equity loan increase your mortgage payment?

A home equity loan is sometimes referred to as a second mortgage because it’s granted based on the equity in your home and requires a monthly re-payment. However, a home equity loan will remain separate from your first mortgage and not affect it in any way.

Why Savvy Consumers Choose CU SoCal

For over 60 years CU SoCal has been providing financial services, including HELOCs, car loans, personal loans, mortgages, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
 
Please give us a call today at 866.287.6225 today to schedule a no-obligation consultation with one of our home equity loan experts.

Get Started on Your Home Equity Loan Today!