Find home equity loan questions and answers.
When shopping for a home equity loan or line of credit, there are many questions to consider. Here are answers to get you started.
Home Equity Frequently Asked Questions
What is Home Equity?
When a homeowner wants to access the value of their home without selling it, they will generally tap into the home’s equity. Basically, it’s the difference between the market value of a property and what you owe against the property. When you want to determine what your equity is, you look at the amount your home could sell for and subtract what you owe on the home in loans and mortgages. The amount remaining is your equity.
What can I pay for with a Home Equity Loan or Line of Credit?
Because of the competitive interest rates and potential tax advantages of a Home Equity Loan or Line of Credit, they’re a convenient way to finance lots of things, including home improvements/repairs, paying for education, purchasing a vehicle, buying a second property or consolidating higher interest rate balances.
How do I tap into my Home Equity?
When you decide to access your home equity, you have several options. Typically, a Home Equity Loan or Home Equity Line of Credit are the primary means. A third possibility is to refinance and take cash out during the refinance.
What is a Home Equity Loan?
A Home Equity Loan (HELOAN) is a one-time installment loan secured by your home. Both the interest rate and monthly payments are fixed, ensuring a predictable repayment schedule for the life of the loan. Interest on a Home Equity Loan may be tax deductible under certain circumstances.
Please consult your tax advisor to see if you qualify.
What is a Home Equity Line of Credit?
A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home. You withdraw money as you need it up to a predetermined limit and repay the loan over a fixed term and typically with a variable interest rate that may increase over time. As you pay down the principal balance during the draw period, your available credit increases. During the draw period, making interest-only payments is allowed.
What are the benefits of a Home Equity Loan or Line of Credit?
Benefits of a Home Equity Loan or Line of Credit may include lower interest rates and potential tax savings. Since a Home Equity Loan or Line of Credit is a secured debt, the average interest rate is typically lower than what you'll pay on an average credit card or other form of unsecured debt. Home Equity Loans and Lines of Credit also offer potential tax savings as interest payments may be tax deductible depending on how you use the loan.
Consult your tax advisor as to the deductibility of your interest.
What is the difference between a Home Equity Loan and a Home Equity Line of Credit?
Both a Home Equity Loan and Home Equity Line of Credit offer flexible options for homeowners. With a Home Equity Loan, funds are received as a lump sum versus a Home Equity Line of Credit that lets you borrow money as you need it. Home Equity Loans have a fixed-rate, meaning the interest rate will never vary for the duration of the loan while Home Equity Lines of Credit come with an adjustable rate.
How can I get a Home Equity Loan or Line of Credit?
When you are ready to apply, you can apply online at our Mortgage Center or talk to one of our lending professionals by phone or in person.
What are the advantages of Home Equity Loans?
Home Equity Loan advantages include the ability of a fixed interest rate, which makes budgeting easier with a fixed monthly payment.
What type of expenses can my Home Equity Loan cover?
Home Equity Loans may be used to for home improvements or repairs, to consolidate and pay down high-interest debt or to make a major purchase.
How do I know if I’m eligible for a Home Equity Line of Credit?
We evaluate several criteria once we receive your application for a line of credit, such as credit history, employment, income and the amount you’re requesting to borrow. We also consider your loan-to-value ratio, which is the relationship between your remaining mortgage loan balance and the value of your home.
What determines the variable interest rate on a Home Equity Line of Credit?
The variable interest rate is based on the Wall Street Journal Prime Rate as published in the Money Rates section.
What are the terms of a Home Equity Loan?
You can borrow a minimum of $10,000 up to a maximum of 85% of your combined loan-to-value (CLTV) ratio on the amount of equity in your home. Certain restrictions apply. Terms are flexible up to 120 months (10 years). The interest rate is fixed for the term of your loan, and repayments are made in monthly installments of principal and interest.
What are the terms of a Home Equity Line of Credit?
A Home Equity Line of Credit has 2 different payment terms. During the draw and repayment period, you have the option to select a minimum monthly payment of either 1.5% of the outstanding balance, or interest only for those who qualify. The draw and repayment period is for 10 years, where you have ongoing access to available funds and can use the funds how you’d like. Once the draw and repayment period ends, the balloon payment can be converted to a Home Equity Loan.
Is the interest tax deductible?
Interest on Home Equity Loans and Lines of Credit may be tax deductible.
Consult your tax advisor regarding the deductibility of interest.
Is the interest rate fixed or variable?
Our Home Equity Loans have a fixed rate. Our Home Equity Lines of Credit have a variable rate which changes when the prime rate changes (as published in the money rates section of the Wall Street Journal).
Can I change the interest rate on my Home Equity Line of Credit from a variable to a fixed rate?
No, the interest rate is fixed for 12 months during the introductory rate period. After the first 12 months, the interest rate is variable and subject to change monthly for the remainder of the term.
How can I calculate how much equity I have?
You can get a rough estimate of your available equity by subtracting all of the debts secured by your home (example: your mortgage and any other Home Equity Loans) from your home’s estimated market value. For example: if you had a house with a market value of $200,000 and a mortgage balance of $150,000, your home equity would be $50,000.
How can I estimate my home’s market value?
You can get an estimate of your home’s market value by reviewing recent sale prices of similar homes in your area. There are also helpful websites, such as Zillow.com and Eppraisal.com, which provide estimates of home values.
How much can I borrow?
You can borrow a minimum of $10,000 up to a maximum of 85% of your combined loan-to-value (CLTV) ratio on the amount of equity in your home. Certain restrictions apply. Your borrowing ability is determined by the equity you have in your home as well as other factors such as credit history and your current monthly debt.
Are discounts available if I make my payments automatically?
Yes. A discount of 0.25% is available with our Home Equity Line of Credit for customers who have their monthly payments deducted automatically from their account. The discount will be deducted from the margin interest rate. The discount is not available for a Home Equity Loan.
What else should I consider when obtaining a loan against the equity in my home?
Be careful when obtaining a Home Equity Loan or Line of Credit to pay for short-term expenses. While the interest rate may be lower than rate of your current loan/debt, it is possible you will be paying back the loan over a longer period of time, which may result in paying more interest. Another concern is incurring new debt after using a Home Equity Loan or Line of Credit to pay down existing debt.
Who should get a Home Equity Loan?
Home Equity Loans are best suited for situations in which the borrower knows how much money will be needed and when it will be needed. Because the borrower receives a lump sum of money, he or she will be paying interest on the entire loan amount – so it’s best for homeowners to know how much will be needed before borrowing. Home Equity Loans work well for debt consolidation, home improvements that require a large payment to a builder, or big-ticket purchases like a vacation cabin.
How will my Annual Percentage Rate (APR) be determined?
Your APR is determined using factors like your credit history, loan amount, the amount of equity you will have in your home after receiving the loan, and repayment term.
How are interest rates determined for Home Equity Loans or Lines of Credit?
If you receive a Home Equity Loan or Line of Credit, the interest rate you pay will be determined by a number of factors like your loan-to-value ratio and your credit score. The lien position on a Home Equity Loan can also determine the interest rate you are charged. For instance, Home Equity Loans are also sometimes called “second mortgages.” However, some Home Equity Loans are in first lien position. A first lien position will have a lower interest rate than a second lien Home Equity Loan. This is because they are secured by your home, just as your first mortgage is. They’re riskier for lenders, who are repaid only after the lender for the mortgage if you default, so the interest rates are typically higher.
Are there any fees associated with a Home Equity Loan or Line of Credit?
We have no application or appraisal fees. We do charge an origination fees which we collect at closing. We may charge a fee if your payment is late or if you do not have sufficient funds to cover a payment. We pay all third-party costs incurred during the loan process.
Can I pay balances from other accounts with my Home Equity Loan or Line of Credit?
Yes. When opening a home equity account, you can pay any higher-rate balances with your new Home Equity Loan or Line of Credit. You can pay balances with a Home Equity Line of Credit via a check, Online Banking, Mobile Banking, telephone transfers into a Providence Bank Checking Account, or at any of our convenient locations.
How can I close my Home Equity Line of Credit?
Follow these steps to close your Home Equity Line of Credit:
- Request a payoff quote by calling 573.761.3664 during regular business hours. We'll fax or mail you a quote within 3 business days after we receive your request. Please allow 10 days for postal delivery.
- Pay all amounts due on your account (including principal, interest, charges, lien-release and/or other fees) with secured funds (such as a cashier's check sent to the address below to bring your balance to $0.
- Sign the authorization form enclosed with the payoff quote confirming that you want to close your account. Make sure to include your full account number on the form and return it by mail at the address below or fax it to 573.636.3563.
Providence Bank
ATTN: Loan Administration
PO Box 106000
Jefferson City, MO 65110
ATTN: Loan Administration
PO Box 106000
Jefferson City, MO 65110
I’ve already paid off my outstanding balance. Is there anything I need to do to close my account?
Yes, please contact us at 573.761.3664 to request a payoff quote because you may be required to pay a lien-release fee from your county clerk's office to close your account. After you pay this, and/or any other amounts listed on the quote, send us your signed authorization form to the address below or fax it to 573.636.3563.
Providence Bank
ATTN: Loan Administration
PO Box 106000
Jefferson City, MO 65110
Additional Questions
What types of properties can be used as collateral for a Home Equity Loan or Line of Credit?
You can apply for a Home Equity Loan or Line of Credit for a home that you own and live in as your primary residence or a property that is a second home or a vacation home that you occupy. This residence must be a single-family dwelling. Eligible property types include Planned Unit Developments (PUDs) and condominiums. Other properties, such as investment properties, manufactured homes, commercial properties, and trusts are not eligible for a Home Equity Loan or Line of Credit.
You can apply for a Home Equity Loan or Line of Credit for a home that you own and live in as your primary residence or a property that is a second home or a vacation home that you occupy. This residence must be a single-family dwelling. Eligible property types include Planned Unit Developments (PUDs) and condominiums. Other properties, such as investment properties, manufactured homes, commercial properties, and trusts are not eligible for a Home Equity Loan or Line of Credit.
What documents do I need to apply?
Your Personal Banker will provide you with an initial list of documents we need to get started. Every loan is different, so we may request additional documents as we move through the loan process.
Your Personal Banker will provide you with an initial list of documents we need to get started. Every loan is different, so we may request additional documents as we move through the loan process.
Can I submit documents online during the application process?
No. You can submit documents via email, fax or in person at one of our banking centers. Submitting documents quickly will help speed up the processing of your loan request.
No. You can submit documents via email, fax or in person at one of our banking centers. Submitting documents quickly will help speed up the processing of your loan request.
How long does the loan process take?
The actual length of time to process the application varies by homeowner. Typically, the average time is 30 days. Once you’ve signed the documents at closing, the funds will be available after a waiting period of three business days on accounts secured by a primary residence. When you apply for a loan, we’ll make sure that you’re updated on your progress and closing date along the way.
The actual length of time to process the application varies by homeowner. Typically, the average time is 30 days. Once you’ve signed the documents at closing, the funds will be available after a waiting period of three business days on accounts secured by a primary residence. When you apply for a loan, we’ll make sure that you’re updated on your progress and closing date along the way.
What is the Home Appraisal Process?
Our loan personnel will order an appraisal. In some cases, an appraiser will drive to your home and conduct an appraisal by viewing the exterior only.
Our loan personnel will order an appraisal. In some cases, an appraiser will drive to your home and conduct an appraisal by viewing the exterior only.
Do I have to live in the home I’m requesting to use as collateral?
You can obtain a Home Equity Loan or Line of Credit on your primary residence if you’re able to prove that you have lived there for most of the year. In some cases, a secondary residence may be used as collateral (additional restrictions apply). Eligible property types include:
- Single-family residence (such as a house, townhouse or row house).
- Attached single-family residence (such as a condominium).
- Cooperative shares (co-op)
- Two-unit residences
What is the loan closing process?
The loan closing process is quick and convenient. The average closing takes about 45 minutes in the banking center most convenient for you. In some states, a title company will close the loan. Once the loan is closed, you have three business days to change your mind and cancel the loan, known as the right of rescission. Funds are disbursed on the 4th business day.
The loan closing process is quick and convenient. The average closing takes about 45 minutes in the banking center most convenient for you. In some states, a title company will close the loan. Once the loan is closed, you have three business days to change your mind and cancel the loan, known as the right of rescission. Funds are disbursed on the 4th business day.
Can I manage my account online?
Yes. Once your loan funds, you can view your account with Online or Mobile Banking. You'll be able to transfer funds, manage payments and set up alerts.
Yes. Once your loan funds, you can view your account with Online or Mobile Banking. You'll be able to transfer funds, manage payments and set up alerts.
Can I make my payments automatically?
Yes. One of the documents that will be provided to you at closing is the form for enrolling in automatic payments. This form asks for information on the account you would like your monthly payment automatically withdrawn from.
Yes. One of the documents that will be provided to you at closing is the form for enrolling in automatic payments. This form asks for information on the account you would like your monthly payment automatically withdrawn from.
What are cash-out refinances?
When a homeowner has a primary mortgage with a higher interest rate than the prevailing rates and they want to access equity, they can consider a cash-out refinance. This occurs when they refinance their original mortgage to get better terms on a new loan, but also borrow more than the original loan balance so they can receive the added loan amount in cash.
When a homeowner has a primary mortgage with a higher interest rate than the prevailing rates and they want to access equity, they can consider a cash-out refinance. This occurs when they refinance their original mortgage to get better terms on a new loan, but also borrow more than the original loan balance so they can receive the added loan amount in cash.
Can I make additional principal payments to pay off my Home Equity Line of Credit early?
Yes, you may make additional principal payments online, in person at any Providence Bank location, or by mail using the payment coupon attached to your monthly statement.
Yes, you may make additional principal payments online, in person at any Providence Bank location, or by mail using the payment coupon attached to your monthly statement.
When am I supposed to pay off my outstanding balance?
Your draw and repayment period can last up to 10 years, depending on the terms of your credit agreement. You can continue to make monthly payments throughout the payment period to pay off your outstanding balance. Or, you can pay off the total balance at any time.
Your draw and repayment period can last up to 10 years, depending on the terms of your credit agreement. You can continue to make monthly payments throughout the payment period to pay off your outstanding balance. Or, you can pay off the total balance at any time.
Can I have my draw and repayment period extended?
No. The draw period for your existing account cannot be extended. If you meet current credit criteria, you could refinance the outstanding balance into a new Home Equity Line of Credit or Home Equity Loan.
No. The draw period for your existing account cannot be extended. If you meet current credit criteria, you could refinance the outstanding balance into a new Home Equity Line of Credit or Home Equity Loan.
Will my minimum monthly payment go up?
The minimum monthly payment is based on the amount owed at the time of billing. The minimum payment is $50.
The minimum monthly payment is based on the amount owed at the time of billing. The minimum payment is $50.
What do I need to do if I want to continue making automatic payments each month?
No action is required on your part for this automatic payment services to continue. However, please consider the impact on your checking account if your minimum payment amount is expected to increase.
No action is required on your part for this automatic payment services to continue. However, please consider the impact on your checking account if your minimum payment amount is expected to increase.
What is a lien-release fee and why am I required to pay it?
Your county clerk's office charges a fee for processing the release of the lien on your Home Equity Loan or Line of Credit.
Your county clerk's office charges a fee for processing the release of the lien on your Home Equity Loan or Line of Credit.
What if I fail to pay my Home Loan or Line of Credit?
A Home Equity Loan is often called second mortgage because the lender is in what is called second lien position. The lender is also referred to as junior lienholder. This means that if the homeowner did not make the payments of either the first mortgage or the Home Equity Loan or Line of Credit, either lender could foreclose. However, the lender in the first position is repaid first. The junior lienholder is only repaid in full if there is enough money from the foreclosure action to repay both balances. For this reason, second mortgages have higher interest rates than first mortgages – the lender is in a riskier position.
A Home Equity Loan is often called second mortgage because the lender is in what is called second lien position. The lender is also referred to as junior lienholder. This means that if the homeowner did not make the payments of either the first mortgage or the Home Equity Loan or Line of Credit, either lender could foreclose. However, the lender in the first position is repaid first. The junior lienholder is only repaid in full if there is enough money from the foreclosure action to repay both balances. For this reason, second mortgages have higher interest rates than first mortgages – the lender is in a riskier position.
What if I have questions?
If you have any questions about a Home Equity Loan or Line of Credit, please call us at 888.206.2730.
If you have any questions about a Home Equity Loan or Line of Credit, please call us at 888.206.2730.
