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 current appraised value of your home and the balance of your mortgage. For example, if your home is appraised for $400,000 and your mortgage balance is $200,000, you have $200,000 of equity in your home. ($400,000 - $200,000 = $200,000). Direct Federal allows you to borrow up to a maximum loan-to-value (LTV) of 80%. To calculate the maximum line you can apply for simply multiply the appraised value of your home by 80% and deduct your mortgage balance. For example, if your home is appraised for $400,000 and your mortgage balance is $200,000, you can borrow up to a maximum of $120,000. ($400,000 x 80% = $320,000 - $200,000 = $120,000).

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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 family primary residence in Norfolk, Middlesex, Plymouth, Suffolk, Essex, Barnstable or Bristol County, you are eligible for a Direct Federal Home Equity Line. Home Equity Lines on multi-families, 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 Draw Period. At the end of ten years you will 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 will be Prime minus 0.75% subject to a minimum of 2.50% and the maximum of 21% (or the maximum allowed by law). Your rate will vary as Prime changes, but the margin between your rate and Prime will always be -0.75%. 

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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 and receive a decision?

It takes about five minutes to apply and you will have an answer within one day.  Most of our home equity lines close within three weeks.

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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 (rescission period) as long as all conditions and required documentation have been met and confirmed satisfactory.  Standard Documentation needed will be an insurance binder, most recent year-to-date paystub verifying income(current federal tax return for self-employed), utility bill confirming primary residence and flood certifcate if applicable.

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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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Our Call Center Associates are available to answer your questions Monday-Friday 8:00 a.m. - 5:00 p.m. and Saturday 8:00 a.m. - 1:00 p.m. at 781.455.6500.