As a homeowner there are always unexpected expenses. So when the furnace breaks, the kids need help with tuition or it’s finally time to update the kitchen, you may discover that you need a little extra help. Where do you begin?

Consider a Home Equity Line of Credit
A Home Equity Line of Credit (or HELOC) can be used to finance home improvements, pay for college tuition, help with debt consolidation…even finance a wedding or a family vacation. A HELOC also offers additional benefits that credit cards and other loans do not:

• Access money as needed with interest-only minimum payments required for the funds you use
• Tax advantages – the interest you pay may be tax deductible; consult your tax professional
• You choose when and how to pay off the principal
• Access your cash easily in person, or transfer funds securely by phone or online
• Application fees, closing costs and pre-payment penalties vary, and some lenders waive these charges altogether. It pays to shop around!
• You may be able to set up your HELOC as a free overdraft protection for other accounts; consult your lender for details.

Know your LTV and CLTV ratio
LTV, or loan-to-value, is all about how much mortgage you have in relation to how much your property is worth. It’s a percentage figure that becomes a consideration when you buy, sell, or refinance your property. You can calculate your LTV ratio using this formula:

Current Loan Balance ÷ Current Value

For example: Your current loan balance is $140,000. Your home currently appraises for $200,000.

$140,000 ÷ $200,000 = .70
(Convert .70 to a percentage for an LTV ratio of 70%)

CLTV, or combined-loan-to-value, is important If you are considering a home equity line of credit. To calculate your CLTV ratio, add the credit limit you want to establish to your current mortgage balance(s). This gives you your combined loan balance and your CLTV formula would look like this:

Current Combined Loan Balance ÷ Current Value

For example: Your current loan balance is $140,000. You want to take out a $25,000 home equity line of
credit, and your home currently appraises for $200,000.

$165,000 ÷ $200,000 = .825
(Convert .825 to a percentage for a CLTV ratio of 82.5%)

Required ratio
The requirement for your combined loan-to-value (CLTV) ratio may vary by lender. If your CLTV is too high, you can pay down your current loan amount; request a lower HELOC credit limit. There may be different rates for HELOC’s with a lender that are dependent on the CLTV. Rarely does this work. We should not imply.

One last note
If you are purchasing a new home, ask your lender about setting up a HELOC at the same time – you may be able to use your professional home purchase appraisal for your HELOC application as well, saving you time and money.

Learn More
Altra Federal Credit Union offers a Home Equity Line of Credit with no application fee, a closing cost credit, no pre-payment penalties and a discounted rate for the first 6-to 12-month promotional term. For details visit www.altra.org, call (931) 552-3363, or stop by one of our Clarksville locations.

Article sponsored by Altra Federal Credit Union, serving 90,000+ members in all 50 states and around the globe. This information is intended solely to provide guidance and is not financial advice.