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Home Equity Basics from Member One

Your home improvement to-do list is a mile long, but you’re lacking the funds to get anything done. Sound familiar? Since the likelihood of stumbling upon a pot of gold is none, consider tapping into your home equity—the difference between what your property is worth and what you still owe on your mortgage. Read on to learn more about how to leverage your home’s hidden value.

Do the math. Home equity is calculated by looking at the value of your home and subtracting the amount you owe on any mortgages. Let’s say your home is valued at $200,000, and you owe $150,000 on your mortgage. That means you have $50,000 in equity you could potentially use to fund a renovation.

Know the difference. With a home equity loan, you receive the money you’re borrowing in a lump sum payment. It usually has a fixed rate and is often best for large, one-time expenses like a new roof. A home equity line of credit (HELOC) operates more like a credit card in that you can draw money as needed from an available maximum amount. This is best for ongoing expenses that require spending flexibility.

Shop around. You have to apply for a home equity loan or line of credit through a financial institution that offers it. As with any loan, shop around for the rate and features that fit your financial situation. It’s important to understand that committing to a home equity loan or line of credit means you’re using your home as collateral—if you don’t repay the loan, it could go into default, and you could risk losing your home. Make sure you understand the terms and only borrow the amount you can afford.

Budget accordingly. One of the most common ways to use a loan or line of credit is for renovations because they add even more value to your home. You can also use it for things you might not expect like college tuition, debt consolidation, or unexpected medical costs. Whatever you decide to fund, make sure it fits your budget. If your income is unstable and you can’t keep up with the payments, it’s probably not a good idea to incur more debt. If you don’t need to borrow much money or you’re just going to use this for basic day-to-day expenses, it might be wise to consider different options—such as a credit card—or reevaluate your spending habits.

Save Smarter: Avoid Financial Scams

Being a victim of fraud can be devastating. It’s not just the loss of someone’s hard-earned money that makes it so upsetting; it’s also the breach of one’s privacy and personal information. Here are some common scam tactics and ways to protect yourself and your money.

Skimming devices. These typically appear on gas pumps or ATMs and capture information from the magnetic strip on credit and debit cards. One way to protect your information is to check for obvious signs of tampering like an open or broken box, different color material, or graphics that aren’t aligned correctly. Avoid anything that seems questionable. Another tactic is to go inside a building to pay or withdraw money. Criminals need privacy to install skimmers and are less likely to do so if they can be easily seen.

Fake checks. Criminals will attempt to cheat you out of thousands of dollars by writing you a check for more than is due or claiming you’ve won prize money. You’re then asked to deposit the check and return part of the money. The trick? This is a bad check, and you’re now liable for all the money withdrawn from your account. As a rule of thumb, don’t accept checks or money orders as forms of payment from people you don’t know. Stick to cash or payment services like PayPal or Venmo.

Romance scams. In this scam, criminals use a dating service, online ad, or social media to establish a relationship as quickly as possible. After the criminal gains the victim’s trust, they could propose marriage, make plans to meet in person (which rarely happens), and eventually ask for money. To avoid this scam, be wary of who you communicate with online, especially those you haven’t met in person. Never give out your account information to anyone online or over the phone, no matter how legitimate it may seem.

Synthetic identity theft. This type of fraud is accomplished by combining real and fake information to create a fictitious identity. Typically, the criminal will use a social security number (SSN) and pair it with a fake name then use this to obtain credit, open deposit accounts, and obtain driver’s licenses and passports. To protect your identity, don’t carry your social security card unless you really need it. Keep any paperwork that contains your SSN in a safe place and shred any unnecessary documents that contain the number.

Presented by Member One Federal Credit Union