What are the advantages of a home equity line of credit (HELOC)?
A HELOC is an open credit line secured by the paid value of your home. You can generally open a HELOC with up to 85 percent of your home’s equity (Arsenal let’s you use 100 percent), or the difference between what’s left on your home loan and the current value of it.
HELOCs have a “draw” period, during which you can access the available funds, ranging from 5-10 years. When the draw period ends, the loan will have to be repaid, either immediately or within the next 15-20 years.
Once approved for a HELOC, you can spend the funds however you choose. Some plans may require the homeowner to borrow a minimum amount at each draw, keep a predetermined amount outstanding or withdraw an initial advance when the HELOC is first established.
What are some of the advantages of a HELOC?
Only borrow what you need
A HELOC does not give you a lump sum of cash. Instead, it offers the freedom to withdraw funds from the line of credit as needed.
Pay a low interest rate
Interest rates continue to hover at all-time lows. Opening a HELOC now means qualifying for low interest rates on the line of credit. Most HELOCs have fluctuating interest rates, but some lenders allow for the possibility of converting large withdrawals into fixed-rate loans.
Get flexible repayment terms
Terms and repayment plans for HELOCs are generally flexible. Many lenders only require borrowers to make payments toward interest during the draw period. Once that time is over, you must pay back the entire principal immediately, or over the course of 15-20 years.
Receive potential tax benefits
As per the Tax Cuts and Jobs Act of 2017, the interest paid on home equity loans and lines of credit is tax-deductible if the funds are used to buy, build or substantially improve the home of the taxpayer who is securing the loan.
Pay no closing costs
Closing costs include things like title search, title company representative fee, document preparation and an appraisal to evaluate the market value of your property. We pay these, saving you between $500-$1,500.
Borrow up to 100 percent
At Arsenal, we let you borrow up to 100 percent of your available equity. Most lenders in the area only let you borrow up to 80 percent.
Build a credit score
On-time, monthly payments can help boost your credit score. If your credit is not stellar, a HELOC is a lower-interest way to help boost it.
ACU may pay closing costs for home equity loans or lines of credit. If the borrower repays the loan within the first 12 months, the borrower must reimburse the credit union for the closing costs. Borrower is responsible for obtaining and paying for comprehensive insurance to cover the value of the real estate. Your interest may even be tax deductible; check with your tax advisor.