A home equity line of credit (HELOC) may be a good option if you’re looking to consolidate debt, renovate your home, or make a large purchase.
Making a big purchase or undertaking a home renovation can be intimidating. Big projects mean big expenses. A home equity line of credit, or HELOC, can help you fund large purchases and consolidate debt, all within a manageable repayment timeline.
But how can you decide whether a HELOC is right for you? After all, there are plenty of other options out there, from home improvement loans to credit cards. Let's take a look at how you could use a HELOC, then compare HELOCs to other strategies for achieving your goals.
What Can You Expect with a HELOC?
Take advantage of a BECU HELOC and get:
Protection from rising rates with our fixed-rate option.1
Low APRs on fixed and variable-rate options2
No origination fees, which means no application, no appraisal, and no closing fees2
No pre-payment penalties2
Consolidate high interest–rate debt at a lower rate
Funds whenever you need, up to your available credit limit – simply transfer funds to your checking account3
At BECU, up to three fixed-rate advances (of $5,000 or more) can be open at the same time, and choosing this option sets both a fixed payment amount and a rate that won't change even if the prime rate adjusts. HELOC rates could go up the very next day, but the interest on your fixed-rate advance will remain unchanged.
What Is a HELOC Used For?
Here are some of the most common reasons people apply for a home equity line of credit.
One of the greatest challenges of paying down your debt is dealing with fluctuating high-interest rates. You never know when your credit card's interest rate might increase, and trying to pay it all off can feel overwhelming.
Because HELOCs generally have lower interest rates than credit cards, they're a smart way to consolidate high-interest debt. And with a BECU HELOC, you have the option to lock in a low interest rate for the length of the loan with a fixed-rate advance.
Just keep in mind, if you don't repay your HELOC, you could face home foreclosure. Also, because most HELOCs are variable-rate, you may see your monthly payments fluctuate depending on rate changes. Make sure you're confident you can make your payments before applying for a HELOC.
Making Big Purchases
As in the case of a home renovation, HELOCs can be used to fund big expenses, such as a car purchase or paying for college. Just keep in mind that the best use of a HELOC is usually a purchase that builds wealth, which is why they're so often used for home renovation.
HELOCs Compared to Other Loan Products
HELOCs vs. Home Equity Loans
When you take out a home equity loan or line of credit, you're borrowing against the value of your home, minus the outstanding balance on your mortgage, including existing HELOCs. Unlike HELOCs, home equity loans usually have fixed interest rates, meaning they'll never change during your repayment period.
The biggest difference between the two is that a home equity loan has a fixed rate and comes in the form of a single disbursement, all at once. In contrast, a HELOC is an open-ended, variable loan with a draw period during which you can withdraw funds, up to the limit of your line of credit, with minimum payments of interest not less than $100. After that, you have a set repayment period of principal and interest.
So if you're going to make the bulk of your large purchases right away or have one single project in mind, a home equity loan could be a better fit. BECU HELOCs offer a fixed-rate advance option, which might be a good choice for you. But you might prefer a HELOC if you'll be using the money over a longer period of time, perhaps for multiple projects; that way, you can avoid accruing interest on money before you actually need it. With a HELOC, you can borrow and repay as you go for the length of your draw period.
Note: BECU does not offer home equity loans.
HELOCs vs. Home Improvement Loans
When you start a HELOC, you are borrowing money by using your home as collateral. A home improvement loan does not require home equity. As a result, you can get a home improvement loan for up to $25,000, compared to as much as $250,0001 when you have access to a HELOC.
Like a home equity loan, a home improvement is disbursed all at once, whereas you can withdraw funds from a HELOC over time.
HELOCs vs. Credit Cards
Credit cards are a great choice if you're looking to rack up airline miles or cash-back refunds. But you'll also want to make sure you can pay them off relatively quickly, since credit cards tend to have relatively high interest rates.
In comparison, you can "fix" the interest rate on a HELOC, locking in the rate. Having a static rate on a large sum offers peace of mind on the interest rate you pay in the long term. Credit cards, meanwhile, can have interest rates that vary widely over time, from below 10% to above 20%.
If you're a homeowner interested in opening a HELOC, we're here to help. Explore your options by calling 800-233-2328, or visiting any BECU location. You can make an appointment with a member consultant, and have all your questions answered in person.
1The rate for a Fixed Rate Advance (FRA) ranges from 4.59% to 9.59% APR as of 11/1/2019. You may convert all or a portion of your outstanding HELOC variable-rate balance to a FRA. The minimum outstanding balance that can be converted into a FRA is $5,000 from a HELOC account. No more than three FRAs may be open at one time. Contact a BECU representative for current information.
2You must open and maintain BECU membership with a Member Share or Member Advantage savings account; not all applicants will qualify. Financing is subject to credit approval and other underwriting criteria. The specific credit limit will be determined based on information obtained while processing your application, which includes, but is not limited to: your credit report, your income, occupancy, and available equity in your home; not all applicants will qualify. BECU must be able to perfect a first or second mortgage lien on your one-to-four family residence. During the credit advance draw period, your monthly payment will equal the amount of accrued interest, subject to the lesser of $100 or your outstanding balance. Because the minimum monthly payment during the draw period is interest only, your principal balance may not be reduced. At the end of the draw period, your monthly payment will increase and equal the amount of principal and interest necessary to pay off the loan balance by the end of the 180 month repayment period. Insurance to protect the property against hazards (including flood insurance, if applicable) is required. Borrower is also required to pay for optional services (e.g. if borrower retains an attorney that borrower is not required to use). Additional state or local mortgage fees or taxes may apply. A reconveyance fee is charged to remove BECU from the property's title when a HELOC is paid off and closed. Reconveyance fees are paid to prepare and record the Reconveyance with the county in which the property is located and varies by county. Reconveyance fees are not BECU fees and are not waivable. Loan programs, terms, and conditions are subject to change without notice. An Automated Value Model (AVM) may be obtained in lieu of an appraisal at no cost to applicant. In South Carolina, where the law requires use of an attorney, BECU will be solely responsible for paying all attorneys' fees and costs necessary to open the HELOC, and will perform this responsibility fully by paying all reasonable attorneys' fees and costs related specifically to the closing based on rates typically charged by attorneys in the local market for the closing of similar HELOC transactions. The rate for the Home Equity Line of Credit (HELOC) is based on the highest Prime Rate as published in the Wall Street Journal as of the date of any rate adjustment plus a margin. Current HELOC rates range from 4.34% APR - 9.59% APR as of 11/1/2019 and are subject to change. APRs do not include costs and rate may vary monthly (maximum 18% APR) and are subject to increase after account opening upon default. The actual rate may be higher than the advertised rate for loans exceeding 70% combined loan-to-value (CLTV) or if you have lesser creditworthiness. Rates are subject to change without notice and assume a borrower with excellent credit.
3Minimum draw amount is $100.