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Home Equity Line of Credit FAQ

What is a Home Equity Line of Credit?

A Home Equity Line of Credit (HELOC) is a form of revolving credit in which a house serves as the collateral. These funds can be used for almost anything - education, home improvement, debt consolidation or your dream vacation. Also, the interest you pay on your home equity line of credit may be tax deductible (please consult your tax advisor). This is why a HELOC can be a great way to finance large purchases, unlike using a vehicle loan or credit card.

With a home equity line of credit, you are approved for a specific amount of credit, much like a credit card. First South Financial sets this amount by taking a percentage (up to 95%) of the home's appraised value and subtracting the balance owed on that mortgage.

For example (using 80% of the appraised value):

Appraised Value of the Home  = $100,000
Percentage  x 80%
Percentage of Appraised value  = $80,000
Less Balance Owed on Mortgage  - $40,000
Potential line of credit  = $40,000

In determining the line of credit amount, First South will also look at income, debts and other financial obligations, along with credit history.

First South Financial's home equity line of credit has a period of 12 years in which you can borrow the money, aka the "draw period".  Although the draw period is 12 years, the repayment period is 20 years. This means that you pay off the amount you have borrowed over 20 years, not 12.

Does a HELOC have a fixed or variable rate?

The First South Financial Home Equity Line of Credit has a variable interest rate. The rate is based on the prime rate plus a margin depending on the Loan-to-Value (LTV) of the home. Although this has a variable rate, First South HELOCs do not have a floor rate. A floor rate is a rate the lender sets and that is the lowest rate for that loan. For example, a lender may advertise that the rate is Prime + 0% APR, but if they have a floor rate in place of 5.00% APR, the rate for the loan will never go below the floor rate.

At First South Financial, we do not use floor rates. Our HELOCs are variable rate loans tied to Prime plus a margin. If Prime drops, then the rate on our HELOCs will drop as well.

Benefits of a First South Financial HELOC:

  • Ongoing access to funds via First South debit card or provided checks
  • No closing costs*
  • No floor rate
  • No initial draw required
  • No transaction fee for each time you make a draw
  • Long draw period of 12 years
  • Long repayment period of 20 years

*There may be costs to the member if appraisal fee exceeds $350.

Equal Housing Lender. NMLS# 410640

 

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