What is a TD Bank Home Equity Loan?
If you have a major expense looming on the horizon, then a home equity loan from TD Bank may be just what you’ve been looking for. These fixed interest rate loans differ from home equity lines of credit with their variable rates and draw and repayment periods. But they can still provide you with quick cash when you need it. Read on to find out how home equity loans from TD Bank work and what they can do for you.
How TD Bank Home Equity Loans Work
Home equity loans are secured by the equity in the borrower’s home (or second home, or investment property in some instances). Home equity loans are simpler vehicles than a home equity line of credit.
While HELOCs can be drawn from and repaid over and over during the draw period, home equity loans simply disperse the entire loan amount to the borrower up front in one lump sum. They are essentially second mortgages that are similar in structure and terms to primary mortgages.
Home equity loans from TD Bank are materially similar to all other home equity loans offered by banks, credit unions and other financial institutions. They can have loan terms ranging from 5 to 30 years, and they charge fixed rates of interest that do not change during the life of the loan. The mortgage payments don’t change either.
The amount of the loan that the lender will grant the borrower depends upon several factors, including the size of the loan, the loan-to-value ratio, the borrower’s credit report, credit history and debt-to-income ratio. The greater the amount of equity there is in a home, the larger the loan the lender will approve. There is a $25,000 minimum loan amount.
Most home equity lenders will allow for loan-to-value ratios of 80 to 85 percent, while some cap their ratios at 70 percent. But other lenders may go as high as 90 or 100 percent.
The exact amount that can be granted is computed by multiplying the maximum loan-to-value ratio by the home value and then subtracting the balance of any first mortgages or other liens on the property. The remainder is the amount that the lender will generally loan to the borrower.
Each payment of a home equity loan goes to both interest and principal. There is no interest-only option with home equity loans.
Qualification & Requirements for a TD Bank Home Equity Loan
Borrowers who want to get a home equity loan with TD Bank must begin by filling out the online application and waiting for a TD Bank loan officer get in touch with them. The loan officer will go through the application with the borrower and answer any questions that the borrower has. Then the borrower will have to gather the following documentation:
If you are a salaried employee:
- Pay stubs – copies of your most recent pay stubs (past 30 days)
- W-2 forms – copies for the past 2 years
- Work history – explanation of employment gaps of 1 month or more
If you are self-employed:
- Tax returns – copies of signed personal and business tax returns from the past 2 years for each business, including schedules and attachments and Profit and Loss balance sheets
- Any K-1 forms that you have received with those returns
If applicable, TD Bank will also need:
- A Social Security benefit statement or benefit statement of any other sources of retirement income, such as from pensions
- Documentation from additional sources of income (e.g., leases and recent tax returns for rental income)
TD Bank may also request:
- Tax assessment
- Trust agreement – if applicable
- Mortgage statement – if applicable, statements and/or escrow analysis statements
- List of liquid assets – checking and savings accounts, brokerage accounts and retirement plans and accounts
Once TD Bank has all of the documentation that it needs, it will do a title search in order to verify ownership of the property.
After those steps have been completed, TD Bank will contact the customer to schedule the loan closing. Borrowers will need to bring the following items to the closing table:
- Your photo identification – driver’s license, state picture ID, U.S. military ID or U.S. passport are acceptable
- Payoffs – if you’ll be using your line of credit to pay off bills or debt, you need to provide the amount, payee name, billing address and account numbers
- An evaluation of your property – if an interior evaluation is also needed, your lending specialist will contact you to discuss the best time the appraiser or broker can reach you to set up an appointment
- Insurance – proof of homeowners insurance
- Flood insurance (if needed)
After the borrower signs all of the loan documents at the closing, the 3-day borrowers’ right of rescission begins. The funds may be dispersed at the closing or after the 3-day period has elapsed.
Typical Interest Rates
TD Bank charges many different rates for its home equity loans, based upon the loan terms, the amount of the loan and other factors. The lowest rate that it currently charges is a rate of 4.49% APY for a 120 month term (reserved for the best borrowers with the best credit scores and loan-to-value ratios).
Its rates range from about 8% to 4.5% depending upon the factors listed above. Those who set up an automatic payment using a TD Bank checking account will qualify for a 0.25% rate discount.
Pros & Cons
There are several major benefits that come with a TD Bank home equity loan. The first advantage is that the interest rates that are charged for these loans are usually much lower than the rates charged by other forms of credit, such as credit cards, personal and auto loans and student loans. This makes them excellent vehicles for debt consolidation.
Another advantage is that the interest that is charged on any home equity loan that is used for home improvements is tax-deductible as long as the taxpayer is able to itemize deductions. But interest charged on loans used for any other purpose is nondeductible.
In most cases, the lender will pay either some or all of the closing costs for the home equity loan, although TD Bank does charge an origination fee of $99 on all of its home equity loans. But there are no application or annual fees. This stands in contrast to the closing costs incurred on a primary loan that must be paid by the borrower.
The fixed rate that home equity loans charge can be either an advantage or a disadvantage depending upon the circumstances. If interest rates are rising, then locking in a fixed rate may prevent the borrower from having to make larger payments later on. If interest rates are falling, then the borrower may end up having to pay a high rate of interest than the market currently commands.
Of course, the greatest disadvantage of a home equity loan is that if the borrower becomes unable to make the monthly payments, then TD Bank can foreclose on the property. For this reason borrowers are encouraged to carefully examine their budgets in order to ensure that they can make this additional payment before signing on the dotted line.