Do you have undergraduate or grad school loans looming over you, creating a nerve-wracking task of repayment? Consider using a home equity loan to pay them off. People’s home equity can be a powerful tool. However, to ensure you get it right, it’s essential to understand the process.
TwinCity Lending has home equity loan packages that may make it easier for you to pay off your school loans. Your property can be a powerful ally for you as you work to get out from under the burden of student debt. Here’s what you need to know.
Options for Leveraging Home Equity
If you are a homeowner in need of financing to help you achieve your goals, you may want to leverage the following home equity financial tools:
Home Equity Loans (HELOANS)
These loans require a borrower to use their home equity as security and to repay the loan over a fixed period. This type of loan is similar to a mortgage. To determine your home equity loan limit, lenders check your income and credit history, and the loan-to-value ratio. You receive the money in a lump sum, usually at a fixed interest rate. You make payments each month until you pay the loan in full.
Home Equity Line of Credit (HELOC)
A HELOC is similar to a home equity loan in that it relies on the equity in your home to secure the financing. Unlike home equity loans, HELOCs are more like a credit card. You have a sum of money you can access as needed.
You repay based on the amount you have used from the line of credit. These types of financing generally have variable interest rates. As with any home loan, lenders consider your property value, debt, and income before issuing credit.
Which Option Is Better to Pay Off School Loans?
While both choices rely on the equity built up in your home, there are three key differences to consider.
1. Interest rate: In a home equity loan, the interest rate is fixed. You’re expected to pay the same amount each month until you repay the loan. This type of loan is basically like having a second mortgage on the property. HELOC interest rates are variable and depend on the prime rate set by the Federal Reserve.2. Distribution method: A HELOC allows you to take the amount that you need from the available equity. You do not have to draw the full amount at once. Generally, a HELOC stays open for about ten years, although some lenders set different time frames. Home equity loans, on the other hand, come to you in one lump sum.
3. Best use: HELOCs generally work best for ongoing or recurring needs such as tuition or for home improvement projects where you aren’t sure of the exact cost. A home equity loan tends to be the right choice for big-ticket items and needs that are a fixed cost, such as consolidating debt or paying off student loans.
How Much Home Equity Can You Borrow?
Apart from your credit score, lenders calculate the amount of home equity loan you can take based on your loan-to-value ratio. This combination also determines the interest rate on the loan.
An LTV ratio is an assessment of risk your lenders check before approving your loan request. If your home’s value is at $500,000 with a mortgage of $200,000, then your home equity is $300,000. This formula gives you an LTV of 40%. That is, 40% of your home’s value is held in a loan with the remaining 60% representing your equity.
The acceptable loan-to-value ratio often depends on the lender but can be up to 90% based on your credit score. TwinCity Lending can help you determine the amount of loan you may be eligible to secure.
Paying off Student Loans Is Simple as 1 – 2 – 3
Follow these steps to use your home equity to be free of your student loans:
1. Secure your home equity product. Reach out to TwinCity Lending today to discuss the best option for your needs. Our expert team will guide you through the application process to make sure everything moves smoothly to help you reach your goals.
2. Request your student loan payoff amount. Check-in with your lender to find out the exact balance due to pay off your student loan. Be sure to keep payments current while waiting for your home equity product to fund.
3. Submit your payment and become student loan-free. Once you have the cash available from your home equity loan or line of credit, send your final payment to the lender. After the payment clears, request a statement or letter showing that there is no balance remaining. Keep this with your records.
Benefits of Using Home Equity to Pay Off School Loans
May have a lower interest rate – Many borrowers find that they can secure a better interest rate with a home equity product than they receive with a student loan. Lower rates mean you can enjoy a lower monthly amount or repay the amount more quickly.
You access large sums of money – Depending on the equity you have in your home, you could do more than pay off student debt. You may receive enough to pay off your undergrad or grad school loans and still have money left over for other needs.
Use the power of your home – Historically, real estate is a solid investment that grows in value. Using the equity in your house for big-ticket items is a great way to utilize your wealth as you continue building more equity.
TwinCity Lending Can Get You There
Repaying your school loans can feel overwhelming and discouraging. However, if you own a home, you likely have the power to erase your student debt. By securing a home equity loan or line of credit, you can use your home’s value to give you peace of mind and keep you on the path toward building wealth.
If you’re ready to tackle your student loans, we have your back. TwinCity Lending is your go-to mortgage company for all your home lending needs. Contact us today.