Home Equity

Home Equity FAQs

All our products, services, and processes are designed to be as simple as possible, but some questions are bound to arise. Here are some of the most common questions we hear from our members. If you still have questions, or would like more information on any of the topics listed here, please give us a call at 781.455.6500. We’ll be happy to help you.



Should I consolidate debt with a Home Equity Line?

Yes. For the majority of people, a Home Equity Line is the best way to borrow money. Because it is a line of credit, you only borrow what you need, when you need it. The interest you pay is usually tax deductible. (Check with a tax advisor.)

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How do I calculate the equity in my home and how much can I borrow?

The equity in your home is the difference between the market value of your home and the balance on your mortgage. For example, if your home is worth $400,000 and your mortgage balance is $250,000, you have $150,000 of equity in your home. Direct Federal allows you to borrow all of the equity in your home (up to our maximum line amount of $300,000). Most lenders don’t allow you to do this, and the few that do charge much higher interest rates.

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What’s the difference between a Line of Credit and a Loan?

Home Equity Lines and Loans are both very inexpensive ways to borrow money. They have very low interest rates because they are secured by the equity in your home and pose relatively little. Also, the interest paid on a Home Equity Loan or Line is usually tax deductible. The combination of these two factors makes them one of the most economical ways to borrow money.

Home Equity Lines are generally more "flexible" than Home Equity Loans. Home Equity Lines work much like a credit card. You only borrow money when you need to, and when you pay down your balance that portion of your Line is available to borrow again. In essence, you can "give yourself a loan" whenever you need to. When you obtain a Home Equity Loan, you receive all of your money at once and immediately start repaying your Loan. As the outstanding balance of your Loan is repaid each month, that money is not made available to you to borrow again until you open a new Loan.

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Does my property qualify for a Home Equity Line?

If you have a one- to four-family primary residence in Eastern Massachusetts, Southern New Hampshire or all of Rhode Island you are eligible for a Direct Federal Home Equity Line. Home Equity Lines on vacation homes, investment properties, properties that you intend to sell within the next year, properties with a life interest or life estate or properties built on leased land are not available.

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What is the "Draw Period" and what is the "Repayment Period"?

The Draw Period is the period of time you can access funds from your Home Equity Line. At Direct Federal we offer a ten-year initial Draw Period. At the end of ten years we may ask if you would like to extend your Draw Period for an additional ten years or enter the Repayment Period. The Repayment Period is the time during which you make monthly principal and interest payments to gradually pay off your balance. Once you enter the Repayment Period your line is closed to further advances. Direct Federal provides you with a ten-year Repayment Period.

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What is the interest rate on a Home Equity Line?

Your interest rate may be as low as Prime minus 1.00%.  It will be based on your credit score and loan to value ratio.  Your rate will vary as Prime changes, but there are federal regulatory limits on Home Equity Rates, regardless of what happens to Prime.  Currently this limit is 21%. Your rate will not go below 5.00%.

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Is there a minimum or maximum amount I can apply for?

At Direct Federal you can open a Home Equity Line for any amount between $20,000 and $300,000.

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Are there fees or costs associated with a Home Equity Line?

There are no application fees, no appraisal fees, no closings costs and no annual fees associated with a Direct Federal Home Equity Line. If you pay off and close your Line within the first 24 months, you will be charged a $395 fee to offset a portion of the costs incurred to open your line.

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How long does is take to apply?

Within three minutes of starting the application process, 2/3 of our applicants are "ready to close". The remaining 1/3 will have an answer the same business day they apply.

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Can I really close tomorrow?

Yes. Once you are "ready to close" you can schedule a closing at our Needham office or meet with one of Direct Federal’s approved attorneys as early as the next day. Or, if you are not near our Needham office, one of our closers will meet you at your home, office or another convenient location.

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How soon after I close will I have access to my money?

You will have access to your money four business days after your closing. This is known as the rescission period and is required by law.

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How will my minimum monthly payments be calculated?

You will be billed monthly only for the unpaid interest accrued on your Home Equity Line during your Draw Period.  The minimum monthly payment during the Repayment Period will be calculated to ensure your Line is paid off by the end of the ten-year Repayment Period. You may always pay more than the minimum without penalty, regardless of how your minimum monthly payment is calculated.

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How can I increase the credit limit on my existing Home Equity Line?

Simply complete our online application or call us at 781.455.6500. In either case, it will only take a few minutes. You’ll have an answer within one business day. The minimum for a Line increase is $20,000.

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How do I access my Home Equity Line?

You can write a Home Equity check. You can also transfer funds from your Home Equity Line to your Direct Federal Savings or Checking account using our web or phone banking systems. Or, if you prefer, you can come into our Needham branch and make a withdrawal.

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Can I payoff a Home Equity Loan or Line with another lender using a Direct Federal Home Equity Line?

Yes. If you have an existing second mortgage on your property, we will advance your new Direct Federal Home Equity Line to payoff and close your existing Loan or Line with another lender.

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