Home Equity Loans

[Office setting. Kelly Brizzolara is sitting behind her desk, with a couple, Matt and Gaby, sitting across from her.]

Kelly Brizzolara: I'm Kelly Brizzolara, a loan officer here at First American Bank. Today we're going to talk about the difference between a Home Equity Line of Credit and a Fixed Rate Home Equity Loan. A lot of people have a hard time understanding the difference because they're very similar and both use your home as collateral. Here's an example of how they differ. Let's take a look at Gaby and Matthew's situation.

Gaby: We are looking to remodel our kitchen and think we need a loan to get it done. But we're not quite sure what loan to go with. We've heard about fixed rate home equity loans and home equity lines of credit. What's the difference?

Kelly: Well, a fixed rate Home Equity Loan is a loan where you borrow a fixed amount from First American Bank at a fixed rate and make equal payments for the term of the loan.

[On screen text: Home Equity Loan = fixed rate, fixed term and fixed payments]

Kelly: When the term is over, if all payments have been made, the loan is paid off. Because it has a fixed interest rate, you won't have to worry about rate adjustments. A home equity line of credit, or HELOC, is a loan where we will work with you to determine a credit limit and you will then have access to use this credit as you see fit. Home equity lines of credit have variable rates, which means that the rate may change when the prime rate changes.

[On screen text: HELOC = variable rate based on prime.]

Kelly: You can borrow up to the limit of your line of credit, just enough to finish a project around the house or pay an unexpected bill. You can continue to borrow using the available line of credit throughout the life of the loan and pay interest only on the outstanding monthly balance. You can also choose to pay down the principal balance of the line of credit anytime and restore the balance available for you. At the end of the term, if you still have a balance, you must pay it in full or refinance.

Kelly: For a large project like the remodel of a kitchen where you know how much you need and you want to budget a fixed payment; you might consider a fixed-rate home equity loan.

Matt: We were also thinking about getting new appliances for the kitchen and not doing a big remodel. Would a fixed-rate home equity loan work for us too?

Kelly: Yes, but in that case if you are only doing a small job, you might consider a HELOC. A HELOC is a good loan for people who want flexibility, and you can draw on it anytime you need money.

[On screen text: HELOCs provide flexibility.]

Kelly: It's a perfect loan for unexpected financial emergencies, college tuition, a new car, or your new kitchen appliances. That credit limit is available to you for the entire term of the loan, so if you pay off your appliances and need more money later, you can simply use the home equity line of credit again.

Gaby: We're not sure how much we need to borrow. How are loan amounts determined?

Kelly: With any home loan, the amount you can borrow is based on several factors. Our underwriters evaluate your past credit history, the amount of income you earn in relation to how much you want to borrow, as well as the value of your home.

[On screen text: First step: Meet with a First American banker]

Kelly: Sitting with me today is the best first step, as we can determine how much you need to borrow and begin the loan application process.

Matt: So, which home equity product is the right one for us?

Kelly: I'd say in your case, a home equity line of credit might be a better fit for your projects. A new kitchen and new appliances and you're really cookin'!

Gaby: Thank you, First American Bank!

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