What is a Citizens Bank Home Equity Loan?
If you find yourself in a financial bind and need to come up with money quickly to pay for home improvements, cover yourself for a period of disability or pay for educational or automotive expenses, then a home equity loan from Citizens Bank may be the ideal solution for you. Read on to find out how Citizens Bank home equity loans work and what they can do for you.
How Citizens Bank Home Equity Loans Work
Citizens Bank home equity loans are similar in nature to all other home equity loans offered by banks, credit unions and other financial institutions. They are loans that are secured by the equity in the borrower’s house. They differ from a home equity line of credit and its variable interest rate with fixed interest rates and terms.
Unlike with home equity lines of credit, there is no draw period for a home equity loan; the entire term of the loan could be considered to be the repayment period. The term can be for anywhere between 5 and 30 years. Some home equity credit lines require a balloon payment at the end of the draw period.
Each payment of a home equity loan is allocated between principal and interest. The interest rate remains level throughout the life of the loan as do the payments. The borrower begins paying interest on the lump sum.
The loan amount that a borrower can qualify for depends on several factors. The value of your home is perhaps the most important piece, as the greater the value of the home, the larger the loan can be.
The loan-to-value ratio is set by the lender and is usually 80 to 85 percent of the home value, although some lenders will go as high as 90 or even 100 percent. The amount of the loan is then calculated by multiplying the home value by the loan-to-value ratio and then subtracting the balance of the first mortgage and any other liens on the property.
The remainder is the maximum amount that the lender will extend to the borrower.
Qualification & Requirements for a Citizens Bank Home Equity Loan
Borrowers who wish to obtain a home equity loan from Citizens Bank must complete an application either online or in person at one of their branch locations. The following documentation will be required:
- Paystubs for all applicants for the prior month
- W-2’s for all applicants for the most recent tax year
- Tax Returns for all applicants for the prior two years
- Bank statements for prior two months for all deposit accounts and the last quarterly statement covering any investments listed on the application including retirement accounts
- Copy of signed purchase agreement
- Copy of driver’s license for all applicants
- Copy of social security card for all applicants
- Divorce Decree (if applicable)
- Alimony / child support documentation (if applicable)
- Death Certificate (if applicable)
- If a refinance, a copy of the most recent year’s tax bills (spring and fall)
- A copy of the homeowner’s insurance policy if refinancing or prior to the closing if purchasing a new home
- A statement of Social Security and statements of any other retirement income benefits, such as pensions
There may be instances where additional information is also required. Once Citizens Bank has all of the necessary documentation, it will order an appraisal for the property. In some cases, the interior of the property may need to be inspected.
If a significant issue is discovered during the appraisal process, then an inspection may also be required. Finally, Citizens Bank will do a title search to verify ownership of the property.
Once these steps are completed, Citizens Bank will send the borrower a commitment letter and then schedule the closing. The borrower must show a valid picture ID at the closing and sign all of the loan documents. The check will be issued at this time as well. Then the borrower has a 3-day right of rescission during which they can cancel the transaction if they so choose.
Typical Interest Rates
The rate of interest charged by Citizens Bank will vary from one borrower to another depending upon several factors, including the amount of the loan, the maximum loan-to-value ratio, the borrower’s credit score and credit report and the borrower’s debt-to-income ratio.
The term of the loan also matters. Borrowers who open a Citizens Bank checking account can get a rate discount of 0.25% by signing up for an automatic payment plan.
Pros & Cons
- For one thing, borrowers can use the loan proceeds to pay for anything they want, such as medical or dental expenses, college tuition or other educational expenses, automotive expenses, debt consolidation or home improvements.
- Citizens Bank also pays for all of the closing costs of the loan, and there are no annual fees or application fees.
- The interest charged by a home equity loan that is used to build, buy or substantially improve the property in question can also be tax-deductible, as long as the borrower is able to itemize deductions on their income tax return. However, the interest charged on loans made for any other purpose is always nondeductible.
The fixed interest rate that home equity loans charge can be either an advantage or a disadvantage, depending upon the circumstances. If interest rates are rising, then a fixed interest rate can protect the borrower from having to eventually make larger payments. But if interest rates are falling, then the borrower may be locked into paying a higher rate of interest on the home loan than they would have to with a variable rate home equity product in the current interest rate environment.
However, the interest rates charged by home equity loans are almost always much lower than the interest rates charged by other forms of debt, such as high interest credit cards, auto loans and personal loans. This is true regardless of the prevailing interest rate environment. The competitive rates offered by home equity loans are therefore one of their biggest draws.
Of course, by far the biggest disadvantage that comes with any type of home equity loan is the fact that if the borrower becomes unable to make the monthly loan payment on the loan balance, then Citizens Bank has the right to foreclose on the home. Since this would leave the borrower effectively homeless, borrowers are encouraged to carefully consider whether they will be able to make the extra payment each month consistently before they close on the loan.