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<March 2015>



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When Is A Home Equity Loan The Right Choice To Finance Major Expenses?

By David Yanagisawa, Executive Vice President and Chief Lending Officer

iStock_000005550102XSmall.jpgDo you have a child heading to college? Are you planning a major home renovation or looking for a way to consolidate your debt? If you’re at the point where you need ready cash for a major expense, you’re probably looking at a number of options.

As Chief Lending Officer at Lakeland Bank, I’m often asked which financial vehicle is best. My answer always depends on an individual’s life stage, future goals, and current financial situation. For clients who own their own home and have built up some equity, they could consider a home equity loan (HELOAN). For those looking for a lump sum at one time for a non recurring purchase and a predictable payment schedule, a HELOAN is often a good choice.

We’re experiencing a strong interest in HELOANs due to attractive rates, extended terms and reduced fees, so this is a good time to explain more about them. A HELOAN is a traditional home equity loan, sometimes called a second mortgage. In some cases, it may be the only mortgage on the property. It can be set up to have a fixed interest rate and fixed payments.

By comparison, a HELOC is a home equity line of credit that is similar to a credit card. With a HELOC, you receive a set amount of credit to draw against when you want it, and it usually has a variable rate. Find more details on the differences between a HELOAN and a HELOC in this blog by my colleague Bob Vandenbergh, senior executive vice president and COO.

For those specifically considering a HELOAN, here are some items I usually point out to our customers:

• HELOANs typically have attractive interest rates. While the rates are higher than a first mortgage, they are often much lower than the interest rates on credit cards and other consumer loans.

• The interest that you pay on a HELOAN may be tax deductible. That’s not always the case with other forms of credit or personal loans.*

• Today’s HELOANs offer more flexible and extended terms. They can be as long as 15 or 20 years rather than 5 or 10. This provides you with a more manageable monthly payment.

• You can borrow up to $100,000 and deduct interest up to $100,000.*

• Since a HELOAN is not associated with buying a new home, you may save money on closing costs such as title insurance and legal fees.

• Shop around if necessary.
Choosing the right lender can save you money on refinancing.

• Make sure you read the fine print. The
Truth-in-Lending Act requires lenders to disclose all terms and costs of every loan.

* Please consult your tax advisor.

The important thing to remember is that a HELOAN is tied to the equity in your primary residence, so if you are unable to repay the loan, your house may need to be sold to pay off the loan.

Our application process is simple, and you generally find out if you qualify within a few days. You can apply online, or for more information, visit LakelandBank.com or contact me at DYanagisawa@lakelandbank.com.

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