Frequently Asked Questions | Home Equity and Line of Credit

A home equity loan uses a portion of the appraised value of your primary residence, above what you owe on your existing mortgage, as security for a loan.

A home equity line of credit is a form of revolving credit in which your home serves as collateral for the loan. Because your home is likely to be your largest asset, you may want to use your credit line for major items such as education, consolidation, financing an education, planning a wedding, or home improvements and not for day-to-day expenses. With a home equity line, you will be approved for a specific amount of credit -- your credit limit -- meaning the maximum amount you can borrow at any one time while you have the home equity line of credit. The credit limit on a home equity line of credit is determined by taking a percentage of the appraised value of your home and subtracting the balance owed on the existing mortgage.

Appraisal of home: $100,000
Percentage: x 80%
Percentage of appraised value: $80,000
Less mortgage debt: -$40,000
Potential credit line: $40,000

In determining your actual credit line, we will consider your ability to repay, by reviewing your income, debts, and other financial obligations, as well as your credit history.

Our home equity line of credit allows advances within the first ten years. This is considered the draw period. The following 10 years is considered the repayment period. During this time advances cannot be taken and the outstanding balance is repaid. You will need to refinance the home equity line of credit if you want to borrow additional funds after the initial 10 year period. Once your home equity line of credit has been established, you will be able to borrow up to your credit limit anytime during the draw period. You will also be able to draw on your credit line by using special checks or advancing funds into your regular checking account.

A home equity line of credit is a variable-rate account that allows for repeated borrowing without having to re-apply each time. A traditional home equity loan provides you with a fixed amount of money repayable over a fixed period of time at a fixed interest rate. Usually the payment schedule calls for equal payments that will pay off the entire loan within that time. You might consider a traditional home equity loan instead of a home equity line if, for example, you need a set amount for a specific purpose, such as an addition to your home.

In most cases, a recurring need for funds suggests the need for a home equity line of credit. A good example of this is tuition payments.

In addition to being able to apply at a People First branch, you have the option to apply online through our web site. You may also call our Member Service Center at 1-800-446-5598 (for all loans except home purchase mortgages).

It normally takes 4-5 weeks, dependent on verification of appraisals and government requirements.

To determine the equity available in your home, take your home's appraised value or tax assessment and multiply it by 80% (the loan to value ratio), and subtract any outstanding liens.

For example, let's say you've had a mortgage on your home of $100,000 for 10 years and have paid down the principal to $60,000. In the 10 years you have owned your home, property values in your area have increased and now your home is worth $125,000. In this particular example, you would be able to borrow up to $40,000 using your home as security for the loan.

This is calculated as follows:

  • Appraised value of home: $125,000
  • Multiply by 80% (loan to value ratio): ($125,000 x .80) $100,000
  • Less the remainder of the 1st mortgage: - $60,000
  • Equals: $40,000 in available equity

Home equity loans are available for 1 to 4 family residential units, which are owner occupied as primary residences in Pennsylvania. Property insurance is required. Flood insurance may be required.

Rates are based upon an evaluation of applicant credit. Actual rates may vary.

The rate is based on the prime rate as published in the Wall Street Journal on the last business day of the month plus a 0.5% Margin rounded up to the nearest 0.25%. The minimum APR is 3.99% and the maximum APR is 18%.

It is a variable rate.

It is in many cases. Please check with your tax advisor.

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Your savings are federally insured to at least $250,000 by the National Credit Union Administration and backed by the full faith and credit of the U.S. Government.
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