Mortgage FAQs

Thinking of Buying a House... this is the beginning stage of the process

Where can I get easy to understand home-buying information on the web?
Highmark Federal Credit Union is your online resource to help you through the steps of your home buying process. We offer a variety of home loan options to fit your needs within our “Home Loans” section, in addition to our Glossary and FAQ page. If you can not find the answer to your specific question, just put your question in an email from our contact us page, and we will get back to you with an answer. While this online information is helpful it is no substitute for the valuable information that Joanie Howland can provide our home-buying members. Contact us today – we are eager to visit with you about your home-buying dreams and how Highmark can help make them a reality. Stop by our main office at 725 5th Street, Rapid City, or our branch office at 602 Mt. Rushmore Rd, Custer. Or pick-up the phone and give us a call in Rapid City office at 605-716-4444, in Custer at 605-673-4444, or toll-free at 1-800-672-6365.
At what point should I meet with a home loan officer?
It would be best to contact us before you even begin to look for that new home. A basic pre-qualifying exercise will give you a feel for the price range of a home you can afford. A mortgage pre-approval will take you one step further, and will not only provide you with affordability information, but also will give you a leg-up in the negotiation process. There is no doubt that a buyer with preapproved financing has more leverage in a negotiation than one who is still waiting to hear back from their lender.
What is the next step in the home-buying process?
Through this pre-qualification step, you will have an initial idea in what price range you can begin looking for houses. In the event, that there are any credit errors or issues which you were unaware of, starting the pre-qualification process early on, can give you the extra time you may need to resolve them or get them removed from your credit history. Gaining an early understanding of your credit score, can provide you with some extra time to improve your credit score due to delinquencies or money owed on accounts, thereby moving you into a more advantageous interest rate.

Understanding your Credit and making improvements

How can I get a copy of my credit report?
To obtain a copy of your credit report visit annualcreditreport.com or call 1-877-322-8228. The law allows you to order one free copy of your report from each of the nationwide consumer reporting companies every 12 months. Reviewing your credit report prior to applying for a mortgage will give you the opportunity to identify and resolve any credit issues or discrepancies.
Will my credit history prevent me from getting a mortgage?
Highmark Federal Credit Union offers a variety of programs that are designed to help people who have experienced financial difficulties get the financing they need to buy or refinance a home. No matter what your credit history looks like, the best way to understand your mortgage options is to contact us and explore ways to improve your credit rating.
What can I do to improve my credit and financial health?
One of the benefits in becoming a member of a Credit Union like Highmark is that our staff wants to help people take charge of their financial success. We advise members on steps they can take to overcome or resolve areas of concern with their credit. We will educate you on best practices to get your credit back on track, and provide you with services that can help you manage your money automatically.
Why isn’t my score higher?
When a lender, such as Highmark Federal Credit Union, receives your FICO score, up to four "score reason codes" are also delivered. These score reasons are more useful than the score itself in helping you determine whether your credit report might contain errors, and how you might improve your score over time. These are the top 10 most frequently given score reasons. Note that the specific wording given by your lender may be different from this.
• Serious delinquency.
• Serious delinquency, and public record or collection filed.
• Derogatory public record or collection filed.
• Time since delinquency is too recent or unknown.
• Level of delinquency on accounts.
• Number of accounts with delinquency.
• Amount owed on accounts.
• Proportion of balances to credit limits on revolving accounts is too high.
• Length of time accounts have been established.
• Too many accounts with balances.
Does my income affect my credit score?
Income might affect your ability to get a loan, but it does not affect your credit score. Only your credit history — such as timely payments and how much you owe — affects your score. Regardless of income, if you manage your debt responsibly, you can have a high score.
Will my score drop if I order a credit report?
Self-inquiries do not affect your score, as long as you order your credit report directly from the credit reporting agencies, or through an organization authorized to provide credit reports to consumers. It's a good idea to check your credit report once a year.
Is credit scoring discriminatory?
Scoring considers only credit-related information. Factors like gender, race, nationality, and marital status are not included. In fact, the Equal Credit Opportunity Act (ECOA) prohibits lenders from considering this type of information when issuing credit. Because the credit score is mathematically calculated, it treats all borrowers the same.
Will a lower score haunt me forever?
No. In fact, just the opposite is true. Since a credit score is a mathematical calculation, it changes as new information is added to your credit history. Scores change gradually as you change the way you handle credit. For example, past credit problems impact your score less as time passes.
How does a bankruptcy in my history affect me from qualifying for a lending program?
If bankruptcy is part of your credit history, it may prohibit you from qualifying for various lending programs, such as VA, FHA, and SD Housing First-time homebuyers program for at least three years. Contact us to find out what impact this may have on your qualification process.

Pre-qualification and Application Process

How can I determine what amount I might qualify for?
Based on your income, your current debts and estimated down-payment, a quick visit with us will usually help you determine the maximum mortgage amount for which you could qualify. Contact us today to begin the process of pre-qualification. Our home lending professionals can be reached in Rapid City at 605-716-4444, in Custer at 605-673-4444 or by calling toll-free at1-800-672-6965. You may also reference the online calculator tools on our website. This process is frequently referred to as a "prequalification analysis".
What does it mean to get pre-approved?
Getting pre-approved means you receive a loan commitment from Highmark Federal Credit Union before you have found a home, based on a review of your credit and finances.  Having your credit pre-approved shows sellers that you’re a qualified buyer and helps you establish a clear price range.  The process is the same as a typical mortgage application, except that your application doesn’t include property information.
What is the difference between a prequalification analysis and a preapproval application?
A prequalification analysis is typically the result of information shared between a mortgage lender and a potential mortgage borrower and usually does not incorporate information obtained from a credit report. The end product for a prequalification analysis will be a "ballpark" estimate of the maximum. Typically there is no cost or commitment on behalf of either party for a prequalification analysis.

A mortgage loan preapproval application typically results in a written loan decision following a complete mortgage application. You can typically apply for a preapproved mortgage prior to signing a purchase agreement for a home. A preapproval can also add to your negotiating strength when you are ready to make an offer on a home.
What if I have had credit problems?
Your credit history is only one factor in qualifying for a loan, and having made some late payments doesn’t have to keep you from buying a home.  Someone who has consistently made payments on time in the past may have more financing options than someone who has not, but that doesn’t mean a mortgage is off-limits if you’ve had credit problems.
How much cash will I need to purchase a home?
The amount of cash that is necessary depends on a number of items. Generally speaking, though, you will need to supply:
Earnest Money: The deposit that is supplied when you make an offer on the house
Down Payment: A percentage of the cost of the home that is due at settlement
Closing Costs: Costs associated with processing paperwork to purchase or refinance a house
How much down-payment will I need?
While conventional loans (those not backed by a government agency) usually require a minimum down payment of 20%, Highmark Federal Credit Union has several low-down payment programs available, that go down to 10%, 5%, and even no money down.

FHA mortgages from Highmark Federal Credit Union, insured by the Federal Housing Administration, are available at a low interest rate and for as little as 3.5% down.

VA mortgages from Highmark Federal Credit Union, guaranteed by the Department of Veterans Affairs, have a no-down payment option for eligible veterans buying a home.

Please contact us for specific down-payment requirements and programs.
How do I apply for a mortgage?
Highmark Federal Credit Unions will take your application by phone or in person. The application interview typically takes 30-60 minutes.
What will a lender look at when I apply for a mortgage?
Highmark Federal Credit Union considers many factors in evaluating your loan application, but they usually focus on four areas:
Income and debt.  How much money you make and what other bills you have to pay helps us determine how much you can afford in a mortgage payment. This is also referred to as Debt Ratio.
Assets.  Highmark Federal Credit Union needs to make sure you have enough money to cover the costs of buying a home. This is also referred to as your Net-Worth Ratio.
Credit.  How you have paid your other creditors helps us predict whether you will repay your mortgage.
Property.  The value of your home must be equal to or exceed the amount of funds you are borrowing. This is also referred to as Loan-to-Value.
How can I determine what mortgage program is best for me?
Everyone's situation is different. Our mortgage professionals are committed to discovering your needs, and helping you match those needs with a home loan package that's right for you.
What is a construction loan and does Highmark provide them?
Typically, a construction loan is an interim loan secured by the property on which a dwelling is being constructed. The funds are usually disbursed throughout the construction period and replaced with permanent financing once the construction is completed. Highmark does provide Construction loan financing up to 90% of the finished value.
What if I want to buy land first and then build my own home – can I get financing for the land and/or construction?
We offer a financing vehicle to fund the purchase of land/lot and cost of constructing a home, which in turn would be refinanced into a primary mortgage, upon completion of the project. Highmark finances this type of project up to 90% of finished value.
What kind of manufactured home financing is available? Do manufactured homes need to be on a permanent foundation to receive financing?
Highmark takes pride in working to meet the needs of its members. This includes it ability to fund the purchase of modular or manufactured homes.

We offer financing that includes the manufactured home alone or in combination with the purchase of land or lot.
Can I receive help in filling out an application?
Yes. We can assist you in person or over the phone.
What kinds of documents will be requested when I apply for my first mortgage loan?
Frequently lenders will request: Your W2's for the past 2 years, recent paystubs, bank statements, and the purchase contract on the home you are buying. Documentation requests vary by loan type and lender.
How will I know what price range of a house I can look at and how much I can make an offer on?
Stop in and visit with us at 725 5th Street in Rapid City, or at 602 Mt. Rushmore Road in Custer, to become pre-qualified. A letter of qualification can be provided upon request, which can strengthen your position in a negotiation process, when a seller understands financing limitations.
Will I need a home inspection?
The decision to request an inspection is usually up to the buyer. The cost of the inspection is typically the responsibility of the buyer as well. Many homebuyers will make the purchase of their home contingent upon an acceptable inspection to make sure there are no structural, electrical, or any other issues that may affect the home’s safety and value. A homeowner's inspection should not be confused with an appraisal, which is required by most mortgage lenders in order to support the valuation of the mortgage security.

Private Mortgage Insurance

What is PMI and why is it required?
Private mortgage insurance (PMI) is insurance written by a private company that protects the lender from losses when a mortgage with a low down-payment defaults. Borrowers are required to pay the premium for private mortgage insurance. Private mortgage insurance limits a lender's exposure to financial loss resulting from loan default. If you make a down payment of less than 20%, even if you have a good credit profile, lenders generally require private mortgage insurance.
What is the minimum of down payment required to eliminate PMI?
Typically, on a primary residence, the minimum that you need to put down to eliminate PMI is 20%. If you are putting less than this down, but wish to avoid PMI, your lender may have alternative products and pricing options they may provide in lieu of PMI.
How long will I have PMI on my loan?
The Homeowner's Protection Act of 1998 allows borrowers whose loans originated after July 29, 1999, to request cancellation of PMI at 80% loan to value (LTV) based on amortization or actual payments if the borrower has a good payment history, if the borrower provides evidence the property value has not decreased, and certifies there are no subordinate liens on the property. Lenders are required to terminate borrower paid PMI at 78% LTV based on the amortization schedule if the loan is current. If none of the above is done, PMI will terminate automatically at the midpoint of the loan term.

For loans originated prior to July 29, 1999, PMI guidelines will vary from lender to lender and can change at any time. Some investors will not allow the cancellation of PMI. Typically, PMI is required on your loan for a minimum of 24 consecutive payments absent any law to the contrary. After that time, if you have 20% or more equity in your property and meet certain other conditions, you may request to have it removed. Typically, there is no guarantee that your PMI will be removed, and most loan investors will require a new appraisal at your expense prior to removing PMI.
How much does PMI cost?
The cost of PMI is divided into two parts. The first part is a payment made at the time of closing. The second is an ongoing payment made each month with your principal and interest payment.
What are the alternatives to getting PMI?
You definitely have options. By stopping in and visiting with us, and in cases with qualifying credit, we sometimes structure a combination of a first and second mortgage, that can alleviate some of the concerns of mortgage insurance.

Mortgage fees and rates

What is an origination charge?
An origination charge will typically range from 1-2% of the loan amount. This is a fee that most home loan lenders charge for originating the loan. This fee helps the lender offset expenses incurred for originating the loan.
What is a discount point?
A discount point is paid to the lender to permanently buy down or lower an interest rate. It is usually a percentage of the loan amount.
Should I pay discount points?
Discount points are prepaid interest, which you can pay to your lender at closing in exchange for a lower interest rate on your mortgage.  Paying discount points, each of which is equal to 1% of the loan amount, is often called “buying down” your rate. 
So does paying points make sense for you? 
The answer depends primarily on how long you plan to stay in your home.  First, find out how much lower your monthly payments will be if you pay points.  Then, calculate how long it will take for those monthly savings to add up to the cost of the points.  If it would take five years to break even and you’re planning to live in your home for 10, paying discount points may be a smart move.
How are rates determined?
Rates are determined by the stock market and other financial indicators. These rates can change daily or even more frequently as the market rate moves. The changes are based on many different economic indicators in the financial markets. To obtain current interest rates, contact us at 605-716-4444 in Rapid City, at 605-673-4444 in Custer or toll-free at 1-800-672-6365.
Should I choose a fixed-rate or adjustable-rate loan?
Most mortgage loans have either a fixed interest rate or an adjustable interest rate.  With a fixed-rate mortgage, the interest rate never changes and your payments remain stable throughout the life of your loan.  With an adjustable-rate mortgage (ARM), the interest rate changes at regular intervals - usually once every year - based on a formula that uses a market index.  On an ARM loan, rate adjustments begin after the fixed rate period expires.

A fixed rate is usually recommended if you plan to stay in your home for the long term and are buying at a time when rates are relatively low.  An ARM is usually recommended if you plan to move before the rate adjustments begin, or if you are buying when rates are relatively high. 
How can I compare rates and fees when shopping for the best mortgage?
When comparison shopping, look at points, fees and the Annual Percentage Rate (APR). The APR includes the fees that are charged on your loan. Although one lender may have a slightly lower rate, they may charge more fees, and hence have the same APR as a lender with the slightly higher rate. Refer to the comparison charge on the Good Faith Estimate (GFE).
What is the difference between APR and interest rate?
The APR (annual percentage rate) reflects the cost of your mortgage loan as a yearly rate. It also incorporates the cost to obtain the loan, such as discount fees and loan origination fee. The interest rate is the actual note rate.
Why is the Annual Percentage Rate (APR) on the Truth-in-Lending disclosure higher than the rate shown on my mortgage note?
The rate reflected on the APR shows the cost of the credit as a yearly rate. This rate is generally higher than the rate stated on your mortgage note because, in addition to the interest rate, APR includes other costs such as origination charge, loan discount points, pre-paid interest, and mortgage insurance. The APR allows you to compare, in addition to the interest rate, the total cost of financing your loan, among various lenders.
How does the APR affect me?
The higher the APR is in one loan option over another, increases the amount of your monthly payment and the amount of money that is financed or paid at the end of the loan’s life. The difference in the APR can actually result in a difference of thousands of dollars at the end of the loan’s term.
What is prepaid interest?
This is the interim interest that accrues on the mortgage loan from the date of the loan closing to the beginning of the period covered by the first monthly payment. For example, if your closing date is scheduled for June 15, the first mortgage payment is due August 1. The lender will calculate a per-day interest amount that is collected at the time of closing. This amount covers the interest accrued from June 15 to July 1. Some lenders prohibit the collection of pre-paid interest.
What is the difference between “locking” and “floating”?
A lock gives you a specified period of time of protection from financial market fluctuations in interest rates by setting the range of pricing available to you. Your final rate, which may not be determined until closing, will reflect the pricing that was available at the time you locked for loans with your specific transaction characteristics and your credit profile. While locking does not guarantee that a specific rate will apply, it does ensure that your loan pricing will be unaffected during the lock-in period by changes in financial market conditions. For more information, please refer to the Loan Pricing Disclosure. If you choose to "float" or defer "locking," your rate will fluctuate with the market and will be subject to both upward and downward movements in the market. The benefit to floating is if interest rates were to decrease, you would have the option of locking in at a lower level of rates.
What is a rate lock?
This lock gives you protection from financial market fluctuations in interest rates by setting the range of pricing available to you. Your final rate, which may not be determined until closing, will reflect the pricing that was available at the time you locked for loans with your specific transaction characteristics and your credit profile. While locking does not guarantee that a specific rate will apply, it does ensure that your loan pricing will not be affected for a set period of time by changes in financial market conditions.
When can I lock and how much does it cost?
Highmark Federal Credit Union will allow you to lock once you have found a property and as late as up to five business days before closing. Rate locks and fees vary by lender.
What will my mortgage payments be?
For most borrowers, each monthly mortgage payment goes toward the following:
Principal, which is the total outstanding balance of the loan
Interest, which is the cost of borrowing money
Taxes, which are levied on the property by the local government
Insurance, which protects the owner and the lender from losses caused by fire and natural hazards

Homeowners Insurance and Flood certification

At what point do I need to obtain Hazard or homeowners insurance?
At least five (5) business days prior to closing you need to provide Highmark Federal Credit Union with a copy of the "Declaration Page" of your hazard (also known as homeowner's) insurance policy that insures the subject property from the day prior to your closing. You will also need to provide evidence of payment in full of the policy premium for at least one year.
What is flood certification?
Highmark Federal Credit Union is required to obtain a flood certification on all loans secured by residential real estate. A flood certification indicates if the subject property is located within a designated flood zone. If the subject property is located within a flood zone, the borrower must obtain flood insurance.
What information do I need to include on the mortgage holder’s line of my homeowners insurance?
Highmark Federal Credit Union
PO Box 2506
Rapid City, SD 57709-2506
If I need flood insurance, where do I buy it?
You can typically purchase flood insurance through your homeowner’s insurer. If your property requires flood insurance, you must provide evidence of this at least 10 days prior to closing.

Approval and Closing

What are closing costs and how much will I have to pay?
Closing costs are money paid by the borrower in connection with the closing of a mortgage loan. They can vary based on a number of factors: including the lender, mortgage type, purchase contract, and location. Depending on the specific type of loan, they may include origination fee, discount points, appraisal, credit report, title insurance, attorney’s fees, survey, pre-paid items such as tax and insurance payments. In general, they usually include the following:
Lender fees.  Mortgage lenders may charge for expenses related to making the loan, including an appraisal fee, a credit report fee, origination points, and discount points.
Third party fees.  Charges for services not provided by your lender often include the settlement fee, title insurance, and attorney’s fees. 
Prepaid items.  Certain mortgage costs must be paid to your lender in advance. The most common of these are pre-paid interest, hazard insurance, and deposits to set up an escrow account.
Closing costs vary from case to case, and can range from 3%-6% of the sales price of your new home.
How long does it take for my loan to be approved?
The average number of days from application to approval will vary from lender to lender, and depend upon how quickly supporting documentation such as an appraisal, title insurance, etc. can be provided to the lender. Depending on your credit history, down payment or equity in your home, and the loan program selected, some lenders may be able to approve your mortgage in less time.
How long will it take to close with a pre-approval program or without the pre-approval process?
If you applied through a "pre-approval" program and were approved, Highmark Federal Credit Union can generally close within 3 weeks after a purchase contract has been signed. In most cases, 30-45 days from application to closing is typical. Each lender's timeframe will vary and the transaction itself may cause the timeframes to vary.
If I refinance my loan with my existing lender, will I have to pay all the closing costs again?
Typically, yes, as there is a cost to process any new loan application. This cost may include fees paid to third parties, such as the appraisal provider and the title and closing providers.
Will the lender agree to include my closing costs in the loan amount?
On a purchase transaction, you typically cannot finance your closing costs into the loan amount. Some lenders do, however, have special programs under which you may be able to finance some, or all, of the costs by agreeing to a slightly higher interest rate. Also, if you are refinancing, you may be able to refinance some, or all, of your closing costs.
How quickly can a lender close on my home loan?
Many lenders can facilitate closing 2 to 3 weeks after you have agreed on a purchase contract for a home. If you need more time, you can take the time you need. However, keep in mind if you want to close after your rate lock expires, you will need to pay additional fees to protect your interest rate. Many lenders require 30-45 days from purchase contract and application to closing.
Can I close on a home without having to be at the closing table?
Many lenders are willing to accommodate what is termed a "mail away" closing. You may also appoint someone to act for you by using a Power of Attorney. In this scenario, you would actually assign someone to sign on your behalf. Each state has its own specific requirements, so please check with your closing agent for state specific requirements. If you select a "mail away," the lender will coordinate overnight delivery of the documents to ensure a timely closing. Please note this process may require some additional coordination time.
What is direct billing?
A direct billing program allows a relocation lender to pay all the non-recurring closing costs on your behalf and, in turn, bill them directly to your employer. This makes the closing process easier and reduces the out-of-pocket expenses you are responsible for at the time of closing. Direct billing is only available in certain situations.
How much money will be required at closing?
The amount of money needed for cash to close is comprised of your down payment, closing costs, as well as the prepaid items for your initial taxes and insurance escrow accounts. A lender is required to provide you with a good faith estimate of settlement costs at the time of application. Also, typically within 24 hours prior to your closing, the closing agent will provide you with the final sum of money required for the closing.
Does the lender require title insurance for purchase transactions?
Yes, a Mortgagee's Title Insurance Policy will be required on purchase transactions.
What is title insurance?
Title insurance provides the lender and the buyer (if you purchase owner's coverage) with coverage for losses resulting from specific title defects listed in the policy. In cases where land and property have changed hands over time, there is always the possibility an error has occurred. If an error has occurred, it may be that someone else may be in title to or have an interest in the property, that improvements encroach on property lines or that other similar problems may exist. In these scenarios, if you do not have title insurance you could lose your investment in your home. Lenders require "lender's coverage" to protect their investment and it only protects the lender. Owner's coverage is optional and provides separate coverage for the borrower.
What homeowner insurance requirements will I need to meet at closing?
Highmark Federal Credit Union, like most lenders, require a one-year paid receipt for homeowner's insurance policy for at least the amount of the mortgage at the loan closing.

Escrow Accounts

What is an escrow account?
An escrow account is typically established at the time you close your mortgage loan. This account is held by the lender for the future payments of recurring items relating to the mortgaged property, such as real estate taxes and insurance premiums, as they become due. Lenders usually require you to pay an initial amount for each of those items to start the reserve account at the time of closing.
Are there any limitations on how much lenders can collect from a borrower for the borrower’s escrow account?
Lenders and servicers are required to follow the standards set forth in the Real Estate Settlement Procedures Act (RESPA) and applicable state law. RESPA and some states set limits on the amount which can be collected by the lender or servicer to pay for escrow items, such as property taxes and insurance, and place a cap on the amount of the reserve. Reserves are funds that a servicer may require a borrower to pay into an escrow account to cover unanticipated disbursements which will need to be made before the borrower's payment is available in the escrow account. There are limits on the additional amounts that can be collected as reserves.

Reverse Mortgages

Who is eligible for a Reverse Mortgage?
All borrowers must be 62 or older. If the home is jointly owned, both borrowers must be at least 62.

There must be equity in the home.

There are no income or credit qualifications.

All applicants are required to participate in HUD-approved counseling to learn more about Reverse Mortgages.

Loans are on the borrower's primary residence only. A primary residence is defined as where the borrower lives 51% of the time and where they file tax returns and the state their driver's license is from.
How much money can the borrower receive with a Reverse Mortgage?
The amount will vary from borrower to borrower depending on age, appraised value of the home, the amount of equity in the home, and current interest rates. For the Home Equity Conversion Mortgage, the loan amount is also capped at the HUD mortgage limit for the property's location.

The funds can be received as a lump sum of cash, regular monthly payments, a line of credit to draw on as needed, or any combination of these.

No monthly payments are required during the life of the loan.
How much does a Reverse Mortgage cost?
There will be interest charges, origination fees, closing costs, an appraisal, and insurance. Closing costs and fees can be financed as part of the loan. Borrowers must still pay their property taxes and homeowners' insurance.
When is the Reverse Mortgage due?
The loan matures when all borrowers no longer occupy the home as a primary residence. Typically, this occurs upon the sale of the home, when the owners move permanently, or when they pass away. When the loan is due, the heirs can either repay the loan and keep the home or sell the home and repay the loan.
When is the Reverse Mortgage not beneficial?
If the borrowers plan to sell the home or move in the next few years. This is because the fees are typically rolled into the loan amount.

If the borrowers want to leave their home to their children free and clear.
Would I meet the requirements for a reverse mortgage if I currently have an existing loan on my home?
Yes, but the existing loan must be paid off prior to or at the settlement of the reverse mortgage. Quite often the reverse mortgage is used to refinance an existing loan.
My property is held in trust, do I qualify?
Yes, but you must be the primary Trustee and qualified by age.
To avoid probate, my children and I own the property in joint tenancy. Do we qualify?
Yes, if the children are age 62 and older and live in the property. Otherwise, they would need to be taken off the title for you to participate.
Are manufactured homes eligible?
Yes. The home must have been built in 1977 or later and have a permanent foundation that is approved by FHA.
Are there any restrictions on how I use the money?
Of course not! After all - it's your money.

Home Equity - your Power Tool to reach your dreams

What is a first mortgage?
A first mortgage is exactly what it says it is - the first loan on a certain piece of property. No other lien has been taken out on this home. When you first buy a house, the loan you typically receive is a first mortgage.
What is a second mortgage?
A second mortgage is also what it says - the second loan against a specific piece of property. Consider this example: Let's say you have a first mortgage on your home. The value of your home is $100,000 and you have a $60,000 balance left to pay on your loan. The $40,000 difference is considered equity, or the part of the home that you own outright. If you wish to further borrow against that $40,000, you would be taking out a second mortgage on the home in order to do so. Why borrow against this equity? In many cases, the interest rate you pay on your mortgage is lower than many other types of loans. Interest is also frequently tax deductible for a first or second mortgage, but not necessarily for a car loan or a credit card. (Consult your tax advisor for more information on tax deductibility and home loans.
What is a Home Equity Line of Credit?
A type of loan in the form of revolving credit that uses the equity in your home as collateral. It is generally a variable interest rate line of credit, similar to how credit cards are rated. Borrowers may use the money for any purpose and may be drawn on an as needed basis.
What is a good rule of thumb to know whether a lump sum draw on equity or a line of credit is right tool for me?
Based on how you need the money funded – as a lump sum or in increments is your best determinant on which home equity power tool works best for you. If you need the total of the proceeds for a single purchase, i.e. to fund college payment, to pay a contractor for a remodeling project, or to pay for a single vacation, then a home equity loan or 2nd mortgage may be the best solution for you. However, if you need to make a series of payments for a longer period of time, such as materials for a remodeling project that you are doing yourself, or to pay for a series of college tuitions over a series of terms, then a line of credit may better suit your needs.
Are there benefits in converting a variable interest loan to a fixed loan rate?
Because variable interest rates can fluctuate and may be higher than that of a fixed loan, once the expenditures are made, it may benefit you to look a the difference in a fixed rate versus a variable rate and covert the line of credit to a 2nd mortgage. Contact us at 605-716-4444 in Rapid City, 605-673-4444 in Custer, or toll-free at 1-800-672-6365, for advice and guidance on your Highmark Home Equity Power Tools.
Are there restrictions on how I can use my home equity line of credit?
As long as you maintain the value of your home’s equity, you can feel confident using the proceeds from your line of credit account in any way you see fit. For further guidance on protecting your home’s equity, contact us at 605-716-4444 in Rapid City, 605-673-4444 in Custer, or toll-free at 1-800-672-6365.
Are there restrictions on the tax deductions I can claim when I use my home equity?
Unlike credit cards or some other installment loans, the interest you pay on your home equity line may be tax deductible. Consult a tax advisor regarding the tax deductibility of interest.