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Home Equity Basics

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

A home equity loan is a lump sum of money, received all at once to cover a large expense – like home improvement projects. Compare that to a home equity line of credit, which works more like a credit card.

When borrowing from your home equity, consider whether a continuing source of funds (home equity line of credit) or lump sum (home equity loan) will best help you achieve your goals.

What does an 80% loan-to-value mean?

Loan-to-value (LTV) represents the amount of debt you owe compared to the value of your home. When you have 80% loan-to-value, that means the amount you owe on your home is 80% of the home value. The remaining 20% of your home’s value is equity. Reference this calculator to better understand how LTV and equity determine the amount of funds you can borrow:

How do I access the funds?

Loan funds will be deposited directly into the designated checking or savings account shortly after loan closing. Line of credit funds can be accessed through Commerce Online Banking transfers, with account checks, by calling our 24-hour information line (800-453-2265) or coming into a branch.

How can I use the funds?

Use your loan or line of credit for whatever you need, whether that is home improvement, college tuition, debt consolidation or other major expenses, you decide.

How long is the application process?

Your Home Equity Specialist will walk you through the entire process and provide you with an approximate time to close.

How do my debts get paid off?

Debts may be paid directly or indirectly, depending on your unique situation. In other words, we pay the debt for you or you pay the debt after you receive the funds. Either way, we will work out the best option for you before loan closing.

What is debt to income and lien position?

  • Debt to income ratio would include all your monthly debt payments divided by your gross monthly income.
  • Lien position is the position in which a lender is securing a loan. In the event a borrower defaults on a loan, the property or asset used as collateral will pay back a first lien position first, then second and so forth. Mortgages are typically in first lien position, while home equity loans and lines of credit can be in first, second or third position.

What is Prime Rate?

The Prime Rate is the interest rate that banks use as a basis to set rates for different types of loans and lines of credit, with the exception of mortgage rates. Each bank sets its own Prime Rate, although for consumer products most banks will use the U.S. Prime Rate published in The Wall Street Journal in its column called "Money Rates,". The U.S. Prime Rate is not always the lowest, the best or the favored rate of interest. Banks use different methods to determine what Prime Rate is applicable for each product and when adjustments will be made. Please ask your Commerce Banker for more information.

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