Cincinnati - As home values rise and the housing market improves, home equity lines of credit are becoming more popular again. Demand for these loans substantially decreased during the housing crisis. However, now they are making a major comeback as the preferred type of loan for consumers who have more equity in their homes and have stayed in them longer than anticipated.
Home equity lines of credit are making up the largest portion of home loans since 2008, according to RealtyTrac data.*
"It's a really smart way to borrow money," said Nancy Elkus, vice president, senior consumer lending product manager for Fifth Third Bank. "Typically there are tax advantages and many consumers do not realize that there is a lot of flexibility with a home equity line of credit."**
Fifth Third is offering a home equity line of credit special through July 31, 2016, with a 1.99 percent introductory annual percentage rate for six months that adjusts to a variable rate as low as 3.24 percent APR. **
Across the industry, the two most popular uses for a home equity line of credit are: home improvement projects and debt consolidation, said Elkus, who chairs the Home Equity Lending Committee for the Consumer Bankers Association.
With a home equity line of credit, banks make a certain amount of money available over a set period of time, with the consumer's home used as collateral. Before consumers consider a home equity line of credit, Elkus recommends they consider these five things:
Know how much equity you have. Most people have more equity in homes now than eight years ago. A report by the Federal Reserve Bank of New York finds that Americans paid 8 percent less on their mortgages in 2015 than they did in 2008. At the same time, the amount of principal paid off rose by 41 percent.
"You are seeing homeowners pay less each month on their mortgages," Elkus said, "while also building up their home equity."
However, Elkus says a lot of consumers don't know the value of their homes or the amount of equity they have in them. Fifth Third offers an equity calculator to estimate the value of your home at 53.com/mortgage/app/homevalue.
Learn your potential tax advantages. Interest paid on the first $100,000 of a home equity line of credit is usually deductible; it doesn't matter how the money is used. Interest paid on amounts borrowed above $100,000 is deductible if the money is used to make repairs and improvements on the home, up to an additional $1 million. Always talk with your accountant, Elkus advises, to ensure you qualify.**
Understand the flexibility a home equity line of credit allows. Consumers don't need to use home equity lines of credit for only home improvements; they also can use them for other expenses. Popular uses include consolidating high-interest debt, paying medical bills, buying furniture, financing large purchases, paying tuition and covering emergency expenses. The interest rate tends to be much lower than other types of financing, Elkus said. She recommends people avoid using the line of credit for everyday living expenses, especially considering that in most cases, the line is secured by the consumer's home.
Evaluate buying a new home versus staying in your existing home. With housing inventory low in many regions, staying in your home may be the best option, Elkus said. The cost to improve your home using a line of credit secured by your home could be the least expensive way to get the features you want. As you pay down the balance, the funds become available to use again.
Know the true cost of the line of credit. Before you make a decision, look at all of the costs to a home equity line of credit. Some have origination fees or annual fees. Fifth Third is offering a 1.99 percent rate promotion for the first six months. There are no closing costs; the annual fee is $65 which is waived for the first year.
*RealtyTrac Q4 2015 U.S. Residential Property Loan Origination Report.
Consult a tax advisor regarding deductibility of interest.
Offer subject to credit review and approval. The go to APR advertised is for highest qualified borrowers with a credit score of at least 750 and a line amount of $50,000 or more. The applicable interest rate varies depending on credit qualifications, line amount, property state, lien position and loan-to-value (LTV) ratio. $10,000 minimum line amount required to open ($5,000 minimum line amount for simultaneous closing with a Fifth Third mortgage or Easy Home Refinance) and a maximum line amount of $500,000. LTV restrictions may vary by property location. The term is 30 years, consisting of a 10-year draw period with interest-only payments followed by a 20-year repayment period with principal+interest, which may increase your monthly payments. After loan consummation, rates are subject to change at any time. Interest rates accurate as of 3/1/16. APRs may vary and are indexed to the Prime Rate as published daily in The Wall Street Journal (Eastern Money Rates table. As of 3/1/16 the WSJ Prime Rate is 3.50%. The maximum APR will not exceed 25% and the minimum APR will never go below 2.74%. Preferred and Enhanced customers receive an additional 0.25% discount, which is not reflected in the rate advertised. Automatic payments from a Fifth Third checking account through AutoBillpayer® are required to receive the 0.25% discount reflected in the rate advertised. For condos, 3-4 unit and investment properties, 0.25% will be added to your rate. If line is secured by a condominium unit you may have to pay a fee between $0-$600 to your Home Owner’s Association for the completion of the Condominium Questionnaire. Annual fee of $65 waived for one year. Fixed rate lock fee is $95. Offer not valid in Pennsylvania market. Rates and offer are subject to change without notice. Checking accounts may have monthly fees. $50 minimum deposit required to open new checking account.
For OH, WV, KY, IN, IL, MI:
Based on the example: interest rate is a variable APR of prime -0.26%, currently 3.24% and is based on a line amount of $70,000 in first lien position. Maximum LTV is 70%. Interest-only payment on $70,000 balance during the draw period is $192.62; Principal+interest payment for the first month of the repayment period is $484.29. Variable Interest rate ranges: For a line amount of $10,000-$49,999 from prime +0.74% (currently 4.24%) to prime +2.59% (currently 6.09%); $50,000+ from prime – 0.26%(currently 3.24%) to prime + 1.99% (currently 5.49%).
For FL, GA:
Based on the example: interest rate is a variable APR of prime + 0.24%, currently 3.74% and is based on a line amount of $70,000 in first lien position. Maximum LTV is 70%. Interest-only payment on $70,000 balance during the draw period is $222.35; Principal+interest payment for the first month of the repayment period is $514.02. Variable Interest rate ranges: For a line amount of $10,000-$49,999 from prime + 0.99% (currently 4.49%) to prime + 3.49% (currently 6.99%); $50,000+ from prime + 0.24% (currently 3.74%) to prime + 2.99% (currently 6.49%). In Florida doc stamps and intangible taxes apply and the bank pays these on the borrower’s behalf. In Georgia intangible taxes apply and the bank pays these on the borrower’s behalf.
For NC, TN:
Based on the example: interest rate is a variable APR of prime + 0.24%, currently 3.74% and is based on a line amount of $70,000 in first lien position. Maximum LTV is 70%. Interest-only payment on $70,000 balance during the draw period is $222.35; Principal+interest payment for the first month of the repayment period is $514.02. Variable Interest rate ranges: For a line amount of $10,000-$49,999 from prime +0.74% (currently 4.24%) to prime + 2.59% (currently 6.09%); $50,000+ from prime + 0.24% (currently 3.74%) to prime +1.99% (currently 5.49%). In Tennessee indebtedness taxes apply and the bank pays these on the borrower’s behalf.
About Fifth Third:
Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. The Company has $141 billion in assets and operates 1,254 full-service Banking Centers, including 95 Bank Mart® locations, most open seven days a week, inside select grocery stores and 2,593 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Pennsylvania, Missouri, Georgia and North Carolina. Fifth Third operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Investment Advisors. Fifth Third also has an 18.3% interest in Vantiv Holding, LLC. Fifth Third is among the largest money managers in the Midwest and, as of December 31, 2015, had $297 billion in assets under care, of which it managed $26 billion for individuals, corporations and not-for-profit organizations. Investor information and press releases can be viewed at www.53.com. Fifth Third's common stock is traded on the NASDAQ® Global Select Market under the symbol "FITB." Fifth Third Bank was established in 1858. Member FDIC, Equal Housing Lender.