Have you been thinking about remodeling the bathroom, adding a deck or renovating the upstairs attic into a bedroom? It’s fun to dream, but coming up with the money to fund these projects isn’t always so simple. Have you heard about Community State Bank’s Home Equity Line of Credit?

Kim Terpstra, a Mortgage Lending Officer with CSB, explains what a Home Equity Line of Credit is in this Q&A and shares how it may be the key to your next home improvement project.

What is a Home Equity Line of Credit?

A Home Equity Line of Credit, also known as a HELOC, is a loan a current homeowner can use to borrow against the equity they have built up in their current home.

What is equity?

Home equity is the value of your home, compared to what you owe on it. Traditionally, your home builds equity in several different ways. First, it builds equity as you make regular payments on your loan. In the process, your mortgage debt decreases. Another way to gain equity is by making home improvements. By doing this, you increase the value of your home when compared to the amount of debt you still have. Lastly, over time, your home will tend to appreciate in value, creating additional equity. All of these are ways you can build equity in your home.

Why would someone get a HELOC vs. refinance their mortgage?

A refinance and a HELOC are actually two different scenarios. Many homeowners choose to refinance their mortgage based on the want or need to take one step closer toward paying off their mortgage. However, a homeowner may choose to refinance and draw funds from the mortgage to improve their home, based on the great rate they received on the loan. While this is an available option, it may not always be the cheapest. A HELOC tends to cost less for the homeowner while providing a competitive rate at the same time. A HELOC also allows the homeowner to make interest payments within the first few years of obtaining the loan. A mortgage loan, by contrast, would require principal and interest payments right away.

What qualifies someone for a HELOC, and how do the payments work?

In order to qualify for a HELOC, homeowners need to have more than 20 percent equity in their home, good credit and be able to afford the loan. For the first five years of the loan, payments are interest-only and required monthly. After the 5-year draw period, if there is a balance on the loan, we will amortize the payments out over 10 years at a fixed rate with principal and interest payments.

Can a HELOC only be used on home improvements or home associated purchases?

A HELOC is commonly used for home improvements, but it is available to you for other needs as well, such as consolidating high interest debt, vacations and appliances. It’s your loan — but remember, you do have to pay it back!

If I have a HELOC and choose to sell my home, what happens?

Your HELOC may be a separate loan from your mortgage, but they do go hand in hand. If you decide to sell your home, you will have to pay off the HELOC with your mortgage or roll it over into a separate loan. There are always other options that may be available on a case-by-case basis.

How can I apply for a HELOC?

If you’re interested in learning more about a HELOC or wuld like to see if you qualify, you can contact a member of our community banking team. We can meet with you to discuss the next steps and options. Please give us a call at 262-878-3763 or visit us online at communitystatebank.net.

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Kim Terpstra, Mortgage Loan Officer, Community Bank, NMLS #776940. Community State Bank is an Equal Housing Lender and Member FDIC.

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