Home Equity Line of Credit

Home Equity Line of Credit

A perk of home ownership is the ability to build equity over time, then use that equity to secure low-cost funds in the form of a one-time loan or a Home Equity Line of Credit (HELOC).

Equity in your home is calculated as the difference between your home’s value and your mortgage balance. Loans are secured against the equity value of your home.

The term “second mortgage” is often associated with financial distress, but in actuality it can be a useful financial tool. If you’re looking to upgrade your home or need a line of credit for other purposes, using this method is one way to utilize your home’s current equity to help.

Access cash for renovations, large purchases, or alternative debt payments at traditionally lower rates. A home equity loan can come as a lump sum of cash, often with a fixed interest rate OR is a revolving source of funds (much like a credit card) that you can access as you choose

One financially smart ways to utilize a home equity loan or HELOC is for renovations and remodeling projects that increase the value of your home. Another is to use the loan to pay off other high-interest debt (such as a credit card), effectively replacing a high-cost loan with a secured, low-cost from of credit.

A few key points:

  • HELOC is an open-end line of credit with a mortgage tied to your property with a draw period of up to 5 years (can draw, pay back, draw for 5 years).
  • Your ability to draw on the line of credit goes away if you choose not to renew the draw period after 5 years (can renew the draw period by refinancing the HELOC).
  • If a balance applies after 5 years, continue making the minimum monthly payment until the balance is paid in full and then the mortgage on the property is satisfied.
  • Minimum monthly payments are 2% of the outstanding principal balance and are due at the end of each month.
  • Interest rate is variable tied directly to the prime interest rate. Interest can change quarterly on the 15th of January, April, July and October.
  • If the rate changes, your payments remain the same (if rate increases, more of your payment goes towards interest and if the rate decreases, less of your payment goes towards interest).

A HELOC is available to MMCCU members – even if you don’t have your mortgage with us. Contact our friendly team to learn if you qualify.

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