Home Equity Fixed Loan vs. Home Equity Line of Credit: What Are The Differences?

It’s not uncommon for homeowners to use their residence as collateral to obtain cash. Such funds are often needed for pricier endeavors, like paying for a renovation or college tuition. When these funds are needed, there are two possible avenues to take when using your home as collateral: a home equity loan or a home equity line of credit.

Both of these loans are based primarily on the borrower’s credit history and home equity, with other criteria impacting the decision. If you have equity in your residence, homeowners can borrow against their home at relatively low interest rates. These loans are also advantageous because, depending on how the funds are used, interest payments may be treated as tax-deductible. However, despite the similarities between a home equity loan and a home equity line of credit, the differences between them are significant. The road you take often depends on your financial situation and personal preferences. Get a glimpse into each loan type to see which is right for you.

Home Equity Fixed Loan

Practically speaking, a home equity loan, often called equity loans (HE) could also be referred to as a second mortgage because the borrower essentially uses their home equity as collateral to take out another mortgage to pay back over a term with set interest rates. This is the more straightforward of the two options: it comes with fixed interest payments over a fixed term, offering borrowers a steady repayment schedule to abide by. Some prefer this type of loan because it allows for better financial forecasting and predictable payments.

The term of a HE loan can be set up for one to 20 years, with interest rates varying case to case (based on such things as the borrower’s credit history, lien position of the property and term) but currently fall somewhere just north or south of 2.75%. For those who like to zoom out and see what their financial path is over a set period, a reliable HE might be the path to take.

Home Equity Line of Credit

Unlike a HE, a key difference with the home equity line of credit (HELOC) is understanding its overall cost over time. These types of loans have two major parts: the draw period and the repayment period. If the draw period is 10 years and the repayment another 20, then a HELOC can function similarly to a 30-year loan. The draw period allows you to take out and pay back money depending on your needs, up to the credit limit, while generally only paying interest on the amount borrowed. The key difference is during the repayment period you have to pay back everything that was borrowed plus interest, which may be at a variable rate. If these payments (often higher than the interest charged during the draw period) are not met, the price could be the collateral itself — your home.

With a HELOC, borrowers may know the maximum of their loan as it is the top of their approved credit limit. However, it can be harder to predict how much they will owe back as interest rates for these loans can swing with the economy.

Ask What You Need

HEs can be beneficial if you like stability and to plan ahead; on the other hand, HELOCs are worthy choices for those who aren’t sure how much they’ll need to borrow, or when they’ll need it. With the latter, you can take funds out and pay them back at multiple times over a decade-long period. As long as homeowners properly plan what they need the borrowed funds for, how they’ll manage that money, and when it will be repaid, either option is doable for those seeking reliable loans.

In need of a loan but aren’t sure which is right for you? First Hope Bank works with clients on their specific needs to advise on the best loan options available. For further information, contact us at (908-459-4121) or visit us online to apply today.

Now that you’re settling in to your new home, there are some important things you need to consider. First Hope Bank recommends the following tips.

Create a budget

The key to a good budget is including as much information as you can, so that you can adequately prepare and plan. It’s important to keep accurate records of your spending so you can spot places to save money and know how much you can reasonably spend. The American Bankers Association’s budgeting worksheet (also available in Spanish) will help you document and categorize your expenses.

Protect your property

Whether you’re a homeowner or a renter, you need insurance to protect your belongings. Check with your local insurance agent, you might be able to get a discount if you have things like dead bolt locks, an alarm system, or smoke detectors, or if you already have a policy with that company, like car insurance. Also, find out if you’re in a flood zone. If you’re concerned about flooding, you will need to purchase a separate flood insurance policy. Learn more at floodsmart.gov.

Protect your safety

Make sure all of the locks on your doors and windows work properly. If it makes you more comfortable, look into having an alarm system installed. Also, check your fire and carbon monoxide alarms once a month to be sure they’re working. If you have a dryer, clean the lint from the entire system, from the dryer to the exterior vent cap. Lint is extremely flammable and poses a fire risk.

Take your tax deductions

One way to save water is by using low-flow toilets. The most cost-effective way to do this is to simply take a 1 liter plastic bottle, fill it with water and place it inside the tank. This will reduce your water use per flush. Another way to save water is placing an aerator on all of your faucets.

Make your house – or apartment – your home

Decorating your space will make it more comfortable and personal. If you’re a tenant, check with your landlord before making major changes like painting the walls or changing the appliances. Renters should take photos of the rental space before moving in to document the existing condition and insist on a final walk-through with the landlord. If you own your home, be smart about where you invest your money on improvements to ensure you’re building equity in your home. For example, updates in the kitchen and bathroom usually provide the best return on investment.

Save up for a rainy day

Although life may be sunny now, it’s a good idea to create a rainy day fund. The fund should have at least three to six months of living expenses in case you or someone in your household loses a job or becomes ill and unable to work.

In recognition of American Housing Month, First Hope Bank is highlighting five questions first-time buyers should consider before purchasing a home. “Owning a home is a great investment,” said Donald D. Somma, President and CEO. “But before jumping into the market it is extremely important for consumers to consider the costs involved and budget accordingly to ensure they’re able to meet all of their financial obligations.” First Hope Bank encourages consumers to consider these questions before beginning their housing quest:

How much money have you saved up?

Start with an evaluation of your financial health. Figure out how much money you have for a down payment or deposit on a rental. Down payments are typically 5 to 20 percent of the price of the home. Security deposits on rentals are usually about one month of rent and more if you have a pet. But be sure to keep enough in savings for an emergency fund. It’s a good idea to have three to six months of living expenses to cover unexpected costs.

How much debt do you have?

Consider all of your current and expected financial obligations like your car payment and insurance, credit card debt and student loans. Make sure you will be able to make all the payments in addition to the cost of your new home. Aim to keep total rent or mortgage payments plus utilities to less than 25 to 30 percent of your gross monthly income. Recent regulatory changes limit debt to income (DTI) ratio on most loans to 43 percent.

What is your credit score?

A high credit score indicates strong creditworthiness. Both renters and home buyers can expect to have their credit history examined. A low credit score can keep you from qualifying for the rental you want or a low interest rate on your mortgage loan. If your credit score is low, you may want to delay moving into a new home and take steps to raise your score. For tips on improving your credit score, visit aba.com/consumers.

Have you factored in all the costs?

Create a hypothetical budget for your new home. Find the average cost of utilities in your area, factor in gas, electricity, water and cable. Find out if you will have to pay for parking or trash pickup. Consider the cost of yard maintenance and other basic maintenance costs like replacing the air filter every three months. If you are planning to buy a home, factor in real estate taxes, mortgage insurance and possibly a home owner association fee. Renters should consider the cost of rental insurance.

How long will you stay?

Generally, the longer you plan to live someplace, the more it makes sense to buy. Over time, you can build equity in your home. On the other hand, renters have greater flexibility to move and fewer maintenance costs. Carefully consider your current life and work situation and think about how long you want to stay in your new home.

When considering buying a home, the down payment you put upfront plays a major role in your future housing expenses. According to the Consumer Financial Protection Bureau, the amount you save can greatly influence your interest rate, monthly housing payment and also your need for mortgage insurance. As you prepare for the home buying process, First Hope Bank is highlighting six tips to help you cut the extra costs and save a substantial amount for your down payment. “Typically, lenders require anywhere between 5 and 20 percent of a home’s purchase value as down payment, but the more money you can put down, the better off you’ll be.” said Donald D. Somma, President and CEO. “By responsibly managing your spending and allocating extra cash to a savings account, you will be on the right track towards saving for your home purchase.” First Hope Bank is providing prospective homebuyers with these tips to save for a down payment:

Develop a budget & timeline

Start by determining how much you’ll need for a down payment. Create a budget and calculate how much you can realistically save each month – that will help you gauge when you’ll be ready to transition from renter to homeowner.

Establish a separate savings account

Set up a separate savings account exclusively for your down payment and make your monthly contributions automatic. By keeping this money separate, you’ll be less likely to tap into it when you’re tight on cash.

Shop around to reduce major monthly expenses

It’s a good idea to check rates for your car insurance, renter’s insurance, health insurance, cable, Internet or cell phone plan. There may be deals or promotions available that allow you to save hundreds of dollars by adjusting your contracts.

Monitor your spending

With online banking, keeping an eye on your spending is easier than ever. Track where most of your discretionary income is going. Identify areas where you could cut back (e.g. nice meals out, vacations, etc.) and instead put that money into savings.

Celebrate savings milestones

Saving enough for a down payment can be daunting. To avoid getting discouraged, break it up into smaller goals and reward yourself when you reach each one. If you need to save $30,000 total, consider treating yourself to a nice meal every $5,000 saved. This will help you stay motivated throughout the process.

Look into state and local homebuying programs

Many states, counties and local governments operate programs for first-time homebuyers. Some programs offer housing discounts, while others provide down payment loans or grants.

Location, location, location efficiency

Carefully consider the location of your home. If you’re close to work, shopping and entertainment, you may not need a car. Without a car you would save money on gas, car insurance and maintenance, not to mention reduce pollution. If you’re thinking about moving further out, try to find something near public transportation and shopping.

Light up the house, not the electric bill

Replacing incandescent light bulbs with more energy efficient compact florescent light (CFL) bulbs will save you about $6 a year in electricity costs per bulb and more than $40 over its lifetime. According to ENERGY STAR, if every American home replaced just one light bulb, we would save enough energy to prevent 9 billion pounds of greenhouse gas emissions per year. Remember to recycle used CFL bulbs. Go to www.epa.gov/bulbrecycling for recycling locations.

Some like it hot, hot, hot or not, not, not

Closely monitor your thermostat. Adjusting it just a few degrees while you’re out can save energy and money. You can make it easier by installing a programmable thermostat. Use fans and close the blinds during the warm months and let the sun in for natural warmth in the winter. Also, change your filter every three months.

How low can you go?

One way to save water is by using low-flow toilets. The most cost-effective way to do this is to simply take a 1 liter plastic bottle, fill it with water and place it inside the tank. This will reduce your water use per flush. Another way to save water is placing an aerator on all of your faucets.

Make it mean-green-clean

Cleaning supplies can be expensive and are made with toxic chemicals. You can save money and the environment by making your own cleaning supplies. All you need are some basic household ingredients like vinegar, lemon juice, baking soda and borax to clean everything from windows to tile. Look online for recipes and suggestions.

Reduce, reuse, recycle!

Sticking to this mantra can help you save money around the house. Use a rag instead of paper towels. Buy products in bulk, concentrate or refillable containers to reduce packaging waste. Look for products made from recycled content. And don’t forget to recycle!

Win-dos for your windows

There are a number of ways you can make your windows more energy efficient without replacing them. For better insulation from the weather you can caulk exterior joints, put shrink wrap on them or hang blackout curtains.

Fan the green flames

To keep your refrigerator running efficiently, keep the fan clean. The motor won’t have to work as hard if the fan is clear of debris.

Decorate Green

Houseplants are like living air-filters. English Ivy, rubber trees, peace lillies, and red-edged dracaena can help clean the air and look pretty too.

Vampire energy is sucking you dry

On or off, anything plugged into the wall sucks energy. Vampire power costs U.S. consumers more than $3 billion a year, according to the U.S. Energy Information Administration. Unplug your electronics and appliances when they’re not in use.

for more green home solutions, visit: www.epa.gov/greenhomes

You might say a community is only as strong as its schools. Homes for the growth, education, and betterment of our youth, schools are the nucleus of any society, and the detailed work of their staff and teachers often goes unnoticed.

The COVID-19 school closures have shown us how diligently these educators work, and as they say, it takes a village.

As schools adapt to distant learning (some on a hybrid model—half at home, half at school), teachers and students are working double time to ensure a safe environment and smooth transition. First Hope is proud to play a role in assisting these vital educators by providing students with the tools they need to learn and engage while in and out of the classroom.

Over the past few months, First Hope has donated digital education programs to a total of 770 students across 10 local schools. Those schools include four high schools (Lenape Valley Regional High School, Morris Hills High School, Morris Knolls High School, and Hackettstown High School) and six elementary schools (Fredon Township, Hope Township, Knowlton Township, Netcong Elementary, Phillipsburg Elementary, and White Township).

While school curricula are typically focused on core subjects, it is believed that also teaching life skills plays an important role in addressing some of the educational gaps that are necessary to bridge for post-graduate advancement. As such, First Hope was proud to donate two digital education programs that emphasize practical skills to aid students and teachers in this period of distant learning.

The programs, Vault and EVERFI, prioritize personal financing, using the building blocks of students’ mathematics lessons to translate into use for everyday scenarios. Vault introduces elementary students to critical financial concepts and skills early in a child’s cognitive development while EVERFI, offered to high schoolers, teaches students how to make wise financial decisions to promote financial well-being over their lifetime.

These two digital education programs supplied students with 1,863 hours of learning—a gift to teachers to balance their heavier workload during this difficult period, and a chance for students to learn in a unique way.

Banks like First Hope know that success is often quantifiable. That’s why we’re humbled to report that elementary students using this software saw assessment scores increase by 26% (from before the course to after), and high school students’ assessment scores increased by 51%. 

These are landmark figures, but perhaps the greatest source of satisfaction comes from the students themselves. One Lenape Valley Regional High School student shared, “I like how this course teaches me things that nobody else has taught me at school or at home. It teaches me very valuable life skills that I appreciate and put to good use.” 

First Hope is proud to do what it can to assist teachers and students during COVID-19 school closures. 

For all their parties, family time, and mirth, the holidays can be a financially complicated season. There are presents to buy and family gatherings to plan, which can cause great strain on your bank account. But with a little proactivity, you can plan your holiday expenses in a way that feels not stress-inducing but empowering. As COVID continues to affect our economy and personal budgeting, try these seven tips this December so that you can try to enjoy the holiday season instead of worrying about it.

1. Make a List of Holiday Expenses

To know how much you’ll spend, you have to map out what you actually plan on buying. Who gets what gifts, and what do you estimate each one will cost? On top of that, don’t forget additional expenses: wrapping paper, packages, or shipping costs if gifts will be travelling. It might help if you rank these gifts—perhaps categorize them by “have to buy,” “maybe will buy,” and “will only buy if there’s extra money.” This will help you strategize when it comes to making purchases.

2. Set a Spending Limit

This may seem like the simplest step in your holiday budgeting, but it takes more planning than just slapping a number on your expense limit. First, you should set a hopeful limit (what you aim to spend) and then a top limit (what number you cannot afford to go over). To end up with a value, take into account what you have left after paying your bills, mortgage, and other fees and then seeing, within that surplus, what you are willing to spend. If you are able, don’t forget to budget some money for yourself—this is the holidays, and you should treat yourself somehow!

3. Divide Your Budget

After setting a spending limit, you’ll need to divide your budget accordingly. What purchases take precedence, and who will you be spending more on? If you have people who you frequently give gifts to and receive gifts from, it might help to track in a document what those gifts are so you know approximately what to spend on that person in return. Knowing that value will help you better plan your purchases.

4. Make a Shopping List

And make it personal! Yes, when working on a budget there may be limitations in store. But there are also a number of homemade gifts that are on the cheaper side and show a lot of love. Home-cooked jams, handmade cards, and homemade crafts go a long way. As you prepare to make and wrap gifts, ready your shopping list, and browse around to see who has deals and where you can get the best bang for your buck.

5. Avoid Paying for Gifts on a Credit Card if Possible

Credit cards can be a tempting way to purchase holiday gifts. They’re quick and easy, but as such can also be financially dangerous. It’s not uncommon for consumers to get too into the holiday spirit and wind up buying more than they can pay for, which is why each of the above tips are very important so consumers can plan ahead and only buy what they need and can afford. 

6. Watch for Sales 

The holiday season can be a pricier time, but digging around for sales is always worth the effort. A simple Google search can help, as can using Honey, a free website that aggregates discount codes. You should also spend some time combing through your inbox. How many emails do you get a day for some new item on sale or a discount at your favorite store? Take advantage of those offerings, and expand your reach by chatting with friends: what sales are they seeing and how can those be of help? 

7.Track Your Purchases 

Tracking your purchases is a key way to ensure that you are getting your money’s worth. In Excel or Google Sheets, have a few columns set up: the cost of the present, who it is for, when it is expected to be delivered, and if it was indeed delivered. In either of 

those documents, you will quickly be able to tally your prices and keep track of gifts delivered and received.