Financial Education

Hi, I'm Mark, the host of SAFE Cents! Welcome to our Learning Center, a place where you can improve your financial health.

Fight inflation with your largest asset: your home!

Blog Post
2 min read
wooden home with coins stacked in front of it

Many households are exploring ways to shield their finances from rising inflation. Canceling unnecessary subscriptions, eating out less frequently, and using coupons is a great start — but where would you turn if you needed a large influx of cash? An equity loan might be the answer.

If you’re a homeowner, the solution to your financial worries might reside in your single largest asset: your home. With property values at a 45-year high, many homeowners have more equity than ever.

Equity = Home’s Market Value – (Mortgage Balance + Lien Balances)

What Is an Equity Loan?

Equity loans provide homeowners with a simple way to tap into their property’s equity without selling. Homeowners can use equity loans to access up to 95% of the value of their homes. Qualified homeowners may choose either a home equity loan or a home equity line of credit (HELOC) and use the funds to pay for almost anything. You might even be able to lower your federal income tax liability if you use the loan for specific purposes. Check with your tax advisor to see how you might benefit.

However, significant differences between the two types of loans might make one a better fit for your situation.

A home equity loan is disbursed in a lump sum. Principal and interest payments typically begin shortly after the borrower receives the funds and continue until the loan is paid in full. HELOC borrowers are approved for a credit line from which they can withdraw money as needed. Similar to a credit card, repayment is only required on the amount borrowed.

Weigh the advantages of each program before submitting an equity loan application.

Benefits of a Home Equity Loan

Both types of equity loans offer borrowers higher credit limits, lower interest rates, and potential tax perks unavailable with other types of borrowing. But, home equity loans are ideal for borrowers who already have plans for the disbursed funds before submitting a loan application. Benefits include:

  • A fixed interest rate, which ensures a predictable monthly payment
  • Disbursement in one lump sum so you can immediately fund a project or cover a large expense

Benefits of a HELOC

While both types of equity loans can be used to pay for home improvement projects, college tuition, and other expenses, a HELOC is structurally different from a standard home equity loan. Their variable interest rates can rise and fall with market conditions among other distinctive features, like:

  • Customizable loan advances, so you don't pay interest on what you don't need
  • Simplified budgeting since repayment is only required on the amount withdrawn from the credit line
  • A one-time application, which means there’s no need to re-apply each time you need funds

HELOCs are ideal for borrowers who need reassurance today that they can access cash in the future for a variety of expenses.

Overall, equity loans are an attractive option due to their potential cost savings. However, borrowers  must also know that the home serves as collateral for the loan. If payments aren’t made as agreed, you risk losing the home.

Ensure you have cash when you need it. Call us at 803-905-7589 or visit a branch location to apply for a SAFE FCU Home Equity Line of Credit. A low-cost equity loan could give you peace of mind during uncertain economic times.