Which is the right Home Equity Product for you?

BY LISA SCONTRAS

Tapping the equity in your home when you need cash can make good financial sense, especially when interest rates are as low as they are today.

But comparing home equity loans and lines of credit can be confusing. Introductory rates are appealing, but how long do they last? And how high might the variable rate go after the honeymoon period ends?

Derek Wong, vice president of credit products at First Hawaiian Bank, says shopping for the lowest introductory rate makes sense if you plan to pay off the balance quickly. But once the rate resets, you may end up paying much more over the long term.

“Here is an example,” says Wong. “Let’s say you find a teaser rate of 1 percent.

But after the first year, that rate could adjust to 4.5 percent. Your two-year average becomes 2.9 percent.

“If you don’t think you’re going to pay off the loan in one year, it might make more sense to go with the two-year fixed rate of 1.99 percent,” he continues. “After the first year, the rate remains at 1.99 percent.”

Short-term introductory rates may look appealing. However, you may find that the advantage in the first year doesn’t offset the rate increase later. First Hawaiian Bank’s Home Equity Line offers fixed rate locks up to 12 years to help you take advantage of today’s low interest rate environment. And since equity lines are generally intended for customers who are not sure how much they need, or are going to need small amounts from time to time, the fixed rate for a longer term makes more sense and costs less, too.

“Though short-term teaser rates are attractive, in the long run, we feel it is important to help the borrower pay back the debt,” says Wong. “Our Equity First Line product is unique because we offer a credit line and lock combination.”

Products vary depending on how much equity you have. The amount of equity you have is determined by taking the appraised value of the property less any amount you presently owe. Remember also that since the line is secured by real estate, at least a portion of the interest may be tax deductible, providing you with another benefit. However, be sure to consult with your tax adviser to see how this applies to your particular situation.

A 75 percent loan-to-value is required for a standard line of credit, which means you can borrow up to 75 percent of the appraised value of your home. Qualifying depends on the amount of equity, income, debts and other assets of the borrower. If you don’t have much equity or own a home, there are other products available for these customers as well.

Need someone to help you make sense of all of this? First Hawaiian Bank makes it easy to sort through all the options available by assigning you a personal banker who will help decide which type of product makes the most sense for you.

“Your personal banker can build a product that best fits your specific needs,” says Wong.

Local loan servicing is another way that customers at First Hawaiian Bank benefit.

“We handle everything in Hawaii,” says Wong. “When talking with our customers, local servicing ranks high on their list of what they like best about dealing with First Hawaiian Bank. We do business in our customers’ time zone, which can make all the difference when you want to talk to someone with a question you might have.”

Whether it’s for debt consolidation, school tuition, to fix up your home or to take a vacation, a home equity line of credit allows you to take the equity you need and only pay interest on what you actually borrow.

“Compared to other ways to borrow, the interest rate of our Equity First Line is usually lower, giving you the opportunity to save money every month,” says Wong. “The low interest rate and the tax deductibility are why our customers like to use their equity line to pay off higher interest rate debt, buy a car, improve their home, or pay for private school or college tuition.”

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