Thinking about tapping into your home's equity for a big project or unexpected need? A Home Equity Line of Credit (HELOC) can be a fantastic tool, offering flexibility and competitive rates. To help you understand how a HELOC might work for you, we put together the answers to some common questions.

Q: First off, what exactly is a Home Equity Line of Credit (HELOC) and how is it different from a regular loan?

Great question! Think of a HELOC like a flexible credit line that uses your home's equity as security. Unlike a traditional loan, which gives you a lump sum all at once, a HELOC lets you borrow money as you need it, up to an approved limit, during a specific "draw period." As you pay it back, that credit becomes available again, just like a credit card. It's perfect for ongoing projects or when you're not sure exactly how much you'll need upfront.

Q: That flexibility sounds appealing! What are some common reasons or situations where a HELOC is a really smart choice for SCU members?

There are so many great ways our members use HELOCs! Here are a few popular scenarios:

  • Home Improvements: This is a big one! Whether you're planning a kitchen remodel, adding a new bathroom, or even doing multiple smaller projects over time, a HELOC lets you draw funds as each phase of your project progresses. You only pay interest on the amount you've actually used.
  • Major Expenses: Life happens, right? A HELOC can be a great way to cover significant costs like unexpected medical bills, educational expenses, or even a large, one-time purchase.
  • Debt Consolidation: If you have high-interest debt, like credit card balances, a HELOC can be a smart move. You can use the funds to pay off those higher-interest debts, consolidating them into one lower-interest payment, potentially saving you a lot of money over time.
  • Financial Safety Net: Some members simply use a HELOC as an emergency fund. It's there if you need it, but you don't pay anything until you actually draw from the line.

Q: You mentioned "draw period." Can you explain the typical timeline of a HELOC and how payments work in each phase?

Absolutely! A HELOC usually has two main phases:

  1. The Draw Period: This is the initial phase, often lasting 5 to 10 years. During this time, you can access funds whenever you need them, up to your approved limit. Your monthly payments during this period can be interest-only. This keeps your payments lower initially, which is a huge benefit for managing your budget during a renovation, for example.
  2. The Repayment Period: Once the draw period ends, you can no longer borrow money. The loan then transitions into the repayment phase, which usually lasts 10 to 20 years. During this time, your monthly payments will include both principal and interest. It's important to be aware that these payments will likely be higher than your interest-only payments during the draw period, so it's something we help our members plan for.

Q: What about interest rates? Are HELOC rates fixed or do they change?

Most HELOCs, including ours at SCU, come with a variable interest rate. This means the rate can go up or down based on a market index, like the prime rate. This offers flexibility, as your rate could decrease if the market rates fall. However, it also means your payments could increase if rates go up.

Q: Finally, what are the biggest benefits of choosing a HELOC through SCU Credit Union?

At SCU, we believe a HELOC offers several key benefits for our members:

  • Flexibility: As we discussed, you can borrow what you need, when you need it, and reuse the credit as you repay it.
  • Lower Rates: Because your home secures the loan, HELOCs typically offer much lower interest rates than unsecured loans or credit cards. This means more savings for you!
  • Potential Tax Benefits: If you use your HELOC funds for qualified home improvements, the interest you pay might even be tax-deductible. (Always check with a tax advisor for personalized advice, of course!)
  • Local Support: As your credit union, we're here to guide you through every step of the process, from application to repayment. We're committed to helping our members achieve their financial goals.

More Information:

HELOCs Explained | HELOC Draw Period  | Loan to Value (LTV)

At SCU Credit Union we offer our members home equity lines of credit and home equity loans with competitive rates and flexible terms. For Home Equity Lines of Credit, we lend up to 80% of the assessed value or up to 80% of the appraised value less the remaining balance on your first mortgage on 1-4 family owner occupied residences.

You can apply online or stop in at one of our branches for assistance or reach out to our member service call center at 781-784-7725 or toll free at 877-661-3300.