For a majority of service members and veterans, owning a primary residence is a massive investment that will typically account for most of their net worth through the decades. There’s a good reason for this; a well-maintained property in a desirable location builds generational wealth through increasing equity.
But what’s equity?
Simply put, the equity of your home is its market value minus the amount remaining on your loan.
Here’s an example: You own a home valued at $350,000. You still owe $150,000 on the mortgage loan. This means you have $200,000 in home equity.
What does equity do for me?
Savvy homeowners who are willing and able to sell their property when the market is right can leverage that transaction into a huge financial and lifestyle gain.
In an environment where houses don’t stay listed for long, and buyers are competing for limited inventory, it’s not unrealistic to expect a massive return on your initial investment. If the market is a little colder for sellers, then just hold onto that investment, keep making regular payments, and watch your equity grow.
Selling a house that you purchased for $90,000 a decade ago for $500,000 today is an enormous windfall for any service member; however, the bill for those capital gains can be eye-watering.
However, using those profits to invest in another primary residence may allow you to avoid capital gains taxes on that money and greatly improve your living situation. This is why so many military members trade-up as they move from one duty station to another.
Home equity loans
While the concept of equity is easy to understand, many owners don’t realize that it’s also a great financial asset beyond simply selling and purchasing a new home. You can use it to obtain a home equity loan, or HEL, from Navy Federal Credit Union. A HEL is exactly what it sounds like: getting a lump sum amount for up to 100%1 of the equity in your home valuation.
Navy Federal also doesn’t charge application or origination fees2, and the rate will remain fixed for the life of the loan.
You also have flexibility on the lifespan of your loan, choosing from 5, 10, 15, or 20 years2 with fixed rates as low as 7.34% APR.2That’s money you could use for property improvements (to gain even more equity) or to make an investment purchase, further expanding your portfolio.
Many service members use them to consolidate and pay off higher-interest debts, college for their kids, or just a blowout round-the-world retirement cruise.
If you know exactly how much cash you’ll need, and want a fixed payment plan, then a home equity loan could be the perfect tool.
One thing that homeowners should keep in mind is if they ever plan to sell a property, they should do their research on which improvements will and will not increase the home’s equity.
When asked, a lot of new homeowners will assume a pool contributes to the total equity of a property. That’s a risky assumption when an average-sized pool installation can run anywhere from $60,000 to $100,000, since many real-estate experts estimate that a concrete pool will only add 5-8% to the total value of your home. That’s not to say you shouldn’t get a pool if that’s what you want, but be aware that recreational improvements don’t always increase your home’s equity.
Home equity lines of credit
Another benefit of accruing equity is that you are not limited in how you use it. If a large lump sum loan isn’t the best option for your needs, then maybe a home equity line of credit, or HELOC, is a better fit. If you expect to have variable, ongoing expenses, then the credit line will give you a reliable source of funds, which only needs to be used when needed. With rates as low as 7.75% APR3, you could obtain up to 95% of your home’s equity.1 The more you have, the more you can draw against, from $10,000 to $500,000. Just like their fixed rate option, Navy Federal won’t charge you application or origination fees3 for home equity line of credit.
Think of it like a credit card with no annual fees or a penalty for inactivity, so you can have peace of mind knowing the money is there when you need it. Plus, you’ll have twenty years to draw on the funds — there’s no requirement to spend it if you don’t, and best of all, no closing costs.3
If you’ve been making regular payments and increasing the equity in your home, or the market has taken a bump and you’ve seen a significant leap in the value of the property, then now might be the perfect time to contact your friendly local Navy Federal Credit Union representative and see what the best option is for leveraging your hard work into a financial tool that could pay serious dividends in the future.
This article was sponsored by Navy Federal Credit Union.
1 Product features subject to approval, which is based on an evaluation of credit history, loan-to-value (LTV)/combined loan-to-value (CLTV)/high credit loan-to-value (HLTV) ratio, loan amount, line amount, and occupancy.
2 Home equity loans are fixed-rate loans. Rates are as low as 7.340% APR and assume a 750 FICO on a 5-year term. Rates are based on loan term, credit history, loan-to-value (LTV)/combined loan-to-value (CLTV)/high credit loan-to-value (HLTV) ratio, loan amount, and occupancy, so your rate may differ. A sample fixed-rate equity loan monthly payment based on $100,000 at 7.650% APR for 20 years is $814.79. Taxes and insurance are not included; therefore, the actual payment obligation will be greater. Navy Federal will pay for all closing costs on fixed-rate equity loan applications. For loan amounts up to $250,000, closing costs that members may pay typically range between $300 and $2,000. Covered closing costs include lender fees and fees paid to third parties, such as settlement fees, credit reports, flood determinations, property valuations (including appraisals, if required), title searches, lender’s title insurance, recording, mortgage transfer taxes, and government charges. The member is responsible for escrow payments and/or prepaid costs, if required, including property taxes and assessments, homeowners’ and flood insurance premiums, association fees/dues and assessments, and prepaid interest. You must carry homeowners’ insurance on the property that secures this plan. All loans subject to approval. Offer is subject to change or cancellation without notice.
3 Home equity lines of credit (HELOC) are variable-rate lines. Rates as low as 7.750% APR and 8.750% for Interest-Only Home Equity Lines of Credit assume a 750 FICO. Rates are based on credit history, loan-to-value (LTV)/combined loan-to-value (CLTV)/high credit loan-to-value (HLTV) ratio, loan amount, and occupancy, so your rate may differ. A HELOC has a minimum APR of 3.99% and a maximum APR of 18%. Members who choose to proceed with an interest-only HELOC may experience significant monthly payment increases when the line of credit enters the repayment phase. Navy Federal will pay for all closing costs on HELOC applications. Covered closing costs paid to third parties include settlement fees, credit reports, flood determinations, property valuations (including appraisals, if required), title searches, lender’s title insurance, recording, and government charges. The member is responsible for prepaid interest and escrow payments for first lien HELOCs. Members must carry homeowners’ insurance on the property that secures the HELOC. For loan amounts up to $250,000, closing costs typically range between $300 and $2,000. Applications for a HELOC include a request for a HELOC Platinum Credit Card. All loans subject to approval. Offer is subject to change or cancellation without notice. Rates are subject to change. HELOC loans are not available in Texas.