Two Loans to get us in Tip-Top Financial Shape

by Tim Price, Marketing Communication Specialist RBFCU

Did you take time during the holiday season to put things on? Pounds? Debt?

You know you need to go to the gym to get rid of the first problem. But all you need to do to handle that second issue is head to your financial institution for an exercise that can lead to trimming of debt and a leaner and fitter financial version of yourself in 2020 and beyond.

Performing the following calculation based on the ownership of your house is a lot easier than holding a pull up for 30 seconds. Once you do it, you’ll know the first steps to lowering the interest charges you’ve been paying for way too long. Look to the help of either a low-rate home equity loan or a home equity line of credit (HELOC).

This calculation shows you how much you can borrow against the equity you’ve built up in your home. Homeowners in the state of Texas can take 80 percent of their home’s assessed value, less any liens or loans against the property.

Here’s an example: Your home has a recent appraisal of $475,000. You’ve spent the past number of years making your mortgage payments to the point you now owe $275,000. By multiplying $475,000 by 80 percent, you’ve got $380,000. Subtract the $275,000 you owe from your mortgage and you’ve got a maximum of $105,000 you can borrow against.

Now comes the tricky part. Think of it as the size of the clothes you want your finances to fit in. Even though you’ve got as much as $105,000 to borrow, do you need that much?

If you know the amount you need, you’ll want to go with a home equity loan. These loans offer a one-time, lump-sum loan. Often, they are among the lowest rate loans you’ll find at your credit union or bank. The chances that the rate will be far less than what your credit card is charging you are very good. The rate will be fixed for the term of the loan.

If you think you may have to come back for more, take a look at the HELOC. It leaves the door open for you to come back and access more funds over time up to your maximum. Rates for HELOCs are variable and can change quarterly. So, once you’ve got your “clothes” picked out, let’s take a look at the “before and after” photo of your ability to consolidate your debt. Many sources indicate the national average of credit card debt is almost $8,400 per household with an average interest rate of approximately 17 percent.

Your “before” picture is when you continue to make payments to your credit card company for, let’s say, five years. You would make minimum payments of $208 per month and pay $4,126 in interest (assuming you stopped spending with those cards).

Your “after” picture is when you use a home equity loan to consolidate your $8,400 in credit card debt. If your rate is 2.75 percent and you took five years to pay it off, your monthly payment would be $150 per month and your total interest paid would be $600.

The home equity loan saved you more than $3,000, even if you consider the minimal closing costs. A credit union does not charge an application fee and no prepayment penalties. Credit unions offer a full line of mortgage loans, including home equity and HELOCs.

Credit card balances aren’t the only thing that can be paid through loans using home equity. You can fund some home improvements, handle emergencies, pay college expenses, or a combination of this to consolidate most or all of your debt. You could even put some of the funds toward “flipping” an investment house.

Home equity is viable and real. According to CoreLogic, a national; property information, analytics and data-enabled solutions provider, total home equity increased five percent in the past year. Yet less than one percent of “tappable” equity was withdrawn in the first quarter of 2019. Don’t overlook the value of your home and what it can mean to you. Consider using your home’s equity to become fiscally fit in the 2020s.

Credit unions offer a full line of mortgage loans, including home equity and HELOCs. RBFCU makes this a part of its distinction as the No. 1 Mortgage Lender in Texas for Credit Unions (loans funded) according to the latest 2018 National HMDA data published by the Federal Financial Institutions Examinations Council.

RBFCU is active in North Texas. For 2019 through October, RBFCU has closed more than 425 mortgage loans in North Texas worth more than $65 million.