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How to Leverage Your Home's Equity in a Rising Interest Rate Environment

By Brian Murphy, Home Equity & Consumer Loan Underwriter, Canandaigua National Bank & Trust

After a period of near historic low interest rates, it was inevitable that rates would eventually rise. Leveraging your home’s equity is still a valuable resource, and gaining a better understanding of the difference between a home equity loan and a home equity line of credit may help you in deciding which solution is right for you.

What is home equity?

Owning a home is a big investment and can provide great returns. In fact, it can be a reservoir of funding potential if you have accumulated equity. By the simplest of definitions, the equity in your home is determined by the difference between your home’s market value and what you currently owe on your mortgage and/or any liens on the property.

What is the difference between a home equity loan and a home equity line of credit?

Both a home equity loan and a home equity line of credit (HELOC) allow you to borrow against the equity you've built in your primary residence or vacation home. However, funds availability and repayment structure vary between the two solutions.

Home equity loans

Home equity loans allow you to borrow a fixed amount of money at a fixed rate of interest. The total amount you borrow is advanced to you when you sign for the loan. Repayment of the loan will begin the month following your loan closing with consistent monthly payment amounts throughout the term of the loan.

A CNB home equity loan is an attractive option when presented with an immediate one-time need for funds and a fixed payment and fixed rate is desired, especially as interest rates continue to rise. Be secure in knowing that your rate is fixed up to 10-years, with an amortization up to 20-years.1 Proceeds can be used for your home project, large purchase(s), secondary home purchase, high interest debt consolidation, or whatever your needs may be.

Home equity lines of credit

A home equity line of credit is a variable rate line of credit where the line amount is determined by the amount of your equity available on your home. Funds from the line are advanced by you as you need them (up to the maximum allowed) for the entire 20-year term. No payment is due until an advance is made on the line, and you only pay on the amount advanced. As repayments are made, the available line amount is replenished. There is no minimum borrowing requirement necessary; meaning your payments are based on the amount that is used, if any.

The CNB FlexEquity offers both the traditional line of credit features and functionality, as well as the option to convert outstanding balances into fixed rate, fixed term, subloans. Your monthly payments may vary depending on your outstanding balance and the current interest rate.

The subloan feature uniquely offers the flexibility to fix the balance on your line into one or multiple sub-loans (up to a maximum of 5) with a fixed rate, consistent monthly payment, and up to 10-year term. As payments are made to the sub-loan, the principal portion of the payment replenishes the availability on the line of credit.2

Choosing between the two

When deciding whether to apply for a home equity loan or a line of credit, it's important to consider how much you'll need and how soon you'll need it.

If you want a fixed amount of money for a specific one-time purpose (e.g., remodeling the kitchen), you may wish to take out a home equity loan that advances you the total amount up front. Be confident in knowing you have secured a fixed interest rate with a fixed payment for the life of your loan.

If instead you'll need an indeterminate amount over a few years (e.g., funds for ongoing college expenses), you may benefit most from the flexibility of a home equity line of credit that you can draw on when needed. This may be a more attractive offer for those who are comfortable with a flexible interest rate but are able to pay the line down regularly.

What you need to know

Home equity financing is secured by the equity in your primary residence or vacation home and has several advantages compared to other forms of personal loans including higher borrowing limits, favorable interest rates, and longer repayment periods.

Advances of funds through a home equity loan or a home equity line of credit are loan commitments directly tied to your home. Therefore, upon the sale of your home, all loan commitments tied to your home must be satisfied, including any outstanding home equity loans or line outstanding. Because a home equity loan or line uses your home as collateral, any default on payment may result in foreclosure of the property.

Contact your local CNB office representative today or visit for more information to help determine what path is best for your unique situation.

If the loan is terminated for any reason prior to 3 years from the date of closing, borrower will be required to repay third-party closing costs incurred by the bank to open your loan. These costs can range between $213.00 and $2997.64. 1Closed-end loans with terms in excess of 10 years include a call feature, and the rate and payment may increase at the time of modification. 2A conversion fee of $49 may be assessed for each sub-loan established. Sub-loans require a minimum loan amount of $5,000. Fixed rates on sub-loans will be quoted at the time of request and will not increase during the term of the sub-loan. Maximum number of active fixed sub-loans is five. Maximum term on fixed sub-loans is 10 years but not to exceed maturity date of FlexEquity. All loans are subject to credit approval. This material provided by Brian Murphy. ©2022 Broadridge Investor Communication Solutions, Inc. All rights reserved.