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HELOCs Explained

Maria Contreras

Marketing Manager at Consumers Credit Union.

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Maybe you’re interested in home renovations, debt consolidation, higher education, or maybe you want to help pay for your daughter’s wedding. If you’re a homeowner looking to borrow money, a home equity line of credit (HELOC) from Consumers Credit Union might be the versatile loan option best for you.

What Is A Home Equity Line of Credit (HELOC)?
In short, a HELOC is a revolving line of credit you can access by borrowing against the equity in your home. You can use these low-interest loans for just about anything, and if approached correctly, a HELOC can be a smart way to borrow money.

The Importance of Equity
Since a HELOC borrows against the amount of equity you have in your home, you’ll need to make sure you’ve paid off enough of your mortgage to qualify. A financial institution will secure the ‘second lien’ on the property, so there needs to be equity available.

The amount of equity available is determined by subtracting the balance that you owe on your first mortgage (and any other home loans) from the appraised value of your home.

Let’s say you purchased your home for $400,000 and you currently owe $300,000 on the loan. If your home is appraised at $600,000, that gives you $300,000 in available equity.

Consumers Credit Union is unique in that we allow members to borrow up to 100% of your home’s value. Many other lenders cap borrowing at 80% of the home’s value. So, in the example, you could potentially borrow up to $300,000 with Consumers Credit Union where other lenders may only allow you to borrow $180,000.

Lower Interest
Home equity line of credit rates are typically low and quite attractive, although they vary based on your credit history, the amount of equity in your home, and the terms of the HELOC. In general, you can expect HELOC rates to be lower than the interest rates on a personal loan or credit card, making them an excellent option to consider for qualified homeowners.

Tax Advantages
There may also be tax advantages. Just like mortgage interest, a home equity loan or line of credit interest can be a tax deduction. It’s important to consult with your tax professional before assuming you can deduct the interest paid on a HELOC.

How Payments Work
With a HELOC, you’ll have a set period where you can borrow money, called the draw period. The length of the draw period will vary based on which HELOC you choose, but they’re often around 10 years. During this time, you’ll make regular monthly payments based on the amount of credit you use. You’ll continue to make payments or pay a lump sum during the repayment period.

To find out more information on HELOCs, contact Consumers Credit Union, check out our HELOC Frequently Asked Questions page or apply for a loan now.