Discover the power of your home’s equity.

A HELOC is a line of credit secured by your home that gives you a credit line to use for expenses or debt consolidation. A HELOC is often less expensive than other forms of credit and allows homeowners a lower interest opportunity to leverage a valuable asset they already own — their home’s equity.

A HELOC is typically offered as a variable-rate product with a revolving credit line (similar to a credit card), but instead of using your credit score as a primary basis for approval, the amount you are eligible for is based on the amount of equity you have in your home. This means you can borrow against the line for a specific amount and pay it back over time. Additionally, you can continue to make payments toward the balance, opening up your available credit line each time you do so.

The main advantage of a HELOC is flexibility. Instead of taking a lump sum of money that you have to begin payments on immediately, you can use a HELOC as you go, avoiding paying interest on the entire amount if you’re not ready to use it all at once.

It’s also reusable, meaning that you can use the funds, pay it off, and use it again as many times as needed during the draw period. This eliminates the need to re-apply for funding.

Home Equity Line of Credit (HELOC), is a revolving credit line that is secured by your home and can be used for large expenses or to consolidate higher-interest rate debt on other loans. While there are a few different options for funding backed by your home’s equity, a HELOC provides a flexible way to access funds when you need them.

Credit cards and personal loans typically can come with a hefty interest rate, sometimes up to 20% or even higher. When thinking about your financial future, savings via lower interest rates can really add up over time. With rates often less than 10%, a HELOC can be a wise choice over these types of loans.

² Our Home Equity Line of Credit product will adjust to a fixed rate after the 10-year draw period.

Home equity can be calculated as the current market value of your home, minus what you owe. A gain in home equity comes from paying down the balance of your mortgage, and/or an increase in your home’s market value over time.

For example, if your home is appraised at $400,000 and the remainder of your mortgage balance is $150,000, that would give you $250,000 in equity.

(market value – mortgage balance = equity)

Importantly, if you believe your home has gained value since you purchased it, consider getting an appraisal before you apply for a HELOC. This will potentially give you access to more funds if you need them.

There are other factors at play in determining the amount of your HELOC, but understanding how to calculate your home’s equity value will give you a good starting point.

During the HELOC “draw period”, you can generally make interest-only payments on what you’ve borrowed. Depending on the terms of your HELOC, you may also be able to make payments toward the principal amount, if you choose; however, fees may apply.

You don’t have to withdraw the entire amount of funds — that is the maximum available should you need it. The draw period is usually up to 10 years, depending on the lender and the terms of your agreement.

After the draw period ends, you’ll no longer be able to spend from the HELOC. You’ll enter into the “repayment period”, where you’ll need to pay back the loan. Depending on the terms of your HELOC, this could be over time or due immediately. Typically, the repayment period lasts between 10-20 years, giving homeowners ample time to pay back. Understanding your HELOC’s rate and term structure is key to properly managing your funding.

1. Lower Interest Rates

One of the biggest advantages of a HELOC is its lower interest rates. Because the loan is secured against the equity of your home, lenders can offer lower interest rates than other forms of unsecured loans (like personal loans and credit cards).

It’s important to note that unlike a fixed-rate loan, HELOCs typically have variable interest rates, which means they are subject to fluctuation as dictated by federal interest rates.

Additionally, by obtaining a HELOC through a credit union, you are likely to find lower interest rates and fewer fees than through a for-profit bank. Because credit unions are not-for-profit, they tend to have their members’ best interest in mind, and will offer personalized service to get the best options available to you.

2. Flexibility

Another benefit of a HELOC is its flexibility. Differing from traditional loans where you receive a lump sum payment upfront, a HELOC is a revolving line of credit that allows you to access funds as needed.

You can borrow up to your credit limit and pay it back over time. And, because you only pay interest on the amount you borrow, you receive a money-saving benefit.

3. Tax Deductibility

Often, the interest paid on a HELOC is tax-deductible. For example, if you use the loan to buy, build, or substantially improve your home, the interest may be eligible to be deducted.

Keep in mind that this deduction only applies if you are using the funds to improve the property which backs the HELOC. It’s important to consult with a tax professional to determine if you qualify for any tax deductions related to your HELOC.

4. Versatility

A HELOC can be used for a variety of purposes. Many homeowners use a HELOC to finance home improvements or renovations, but they can also be used to pay for unexpected expenses, like medical bills or emergencies. Additionally, a HELOC can be used to finance large purchases or to consolidate high-interest debt.

Note: Borrowing against your home has some risk if you are using the funds to pay for things that are outside of your budget and do not add value. Because a HELOC is backed by your home, if you fail to pay it back, the bank could foreclose on your home. While HELOCs typically have generous repayment periods, you risk negating the benefits of your home’s equity if you spend the money carelessly. As such, it’s important to use your funds accordingly.