BECU Answers Your Questions about HELOCs
If you're not sure whether a home equity line of credit (HELOC) is right for you, you've come to the right place. These are the most frequently asked questions that we hear about HELOCs.
What is a HELOC?
Home equity lines of credit (HELOC) allow you to borrow money using the equity or value of your home as collateral. Like a credit card, HELOCs are an "open-end loan," which means that instead of borrowing a set amount of funds all at once, you withdraw2 and repay as needed.
How can I use a HELOC?
You can use a HELOC in a variety of ways, including if you want to fund:
Home improvement projects
Debt consolidation (including high-interest credit cards)
Tuition or other ongoing expenses
Home repairs, such as window replacement, energy-efficiency projects, new roof, or unexpected expenses or home emergencies
Am I eligible for a HELOC?
Because a HELOC is borrowed against the equity in your home, you must be a homeowner to apply for this type of loan. Other application consideration factors include your income, employment status, credit score and history, and how much you'd like to borrow.
How much am I eligible to borrow?
You can borrow up to $250,0001 with a BECU HELOC. However, the amount of money that you're eligible to borrow will depend on a number of factors including the value of your home, your mortgage balance, and where your property is located.
What's the difference between a HELOC and a home equity loan?
Both a HELOC and a home equity loan use your home's equity as collateral. However, a home equity loan is a fixed loan that involves a single disbursement of funds, whereas a HELOC is a revolving, variable line of credit that makes funds available for withdrawal and repayment over a set period of time. Even so, with a HELOC, the entire credit limit is available at disbursement.
What's more, while a HELOC has variable interest rates, with a BECU HELOC you can opt for a fixed-rate loan when you withdraw amounts over $5,0003.
What's the difference between a HELOC and a home improvement loan?
While a HELOC is borrowed against your home's equity, a home improvement loan does not use your home as collateral. Because of this, home improvement loans have a lower loan limit compared to HELOCs--up to $25,000, compared to up to $250,000 with a HELOC.
A home improvement loan is also delivered in the form of one lump sum, whereas a HELOC can be withdrawn from over time.
And finally, keep in mind that, with a home improvement loan, the interest rate tends to be higher than with a HELOC.
Do I receive the loan amount over time with a HELOC?
When the HELOC funds, the entire credit limit is available for disbursement. That said, a HELOC is like a credit card - you qualify for an amount, then how you choose to use it is up to you - all of it, some of it, or even just a little of it.
Will I have to pay an application fee?
No. BECU does not charge origination fees1, including application fees, for HELOCs.
What will I need to complete my application?
You'll want to make sure to gather the following documents for your application:
An estimate of your home's value
Personal and employment information on your co-applicants
How much time will I have to draw funds from the HELOC?
You will have ten years with minimum payments of interest only, totaling no less than $100 per month.
How much time will I have to repay the HELOC?
Fifteen years, beginning at the end of the draw period. Your monthly payment during this 15-year period includes principal and interest with the repayment period not exceeding 180 months. Note that the APR continues to be variable and based on the Wall Street Journal prime rate, plus the margin, which is provided with the original loan documents.
What can I expect when my HELOC draw period ends?
You will no longer be able to withdraw funds from your HELOC once your draw period expires. If you have a balance on your account, your new required minimum payment includes the principal and interest. Keep in mind that your payment may be significantly higher if you have only been making interest-only payments.
Please note, unless you lock your rate using a fixed-rate advance, the APR continues to be variable and based on the Wall Street Journal prime rate, plus your margin, which was provided with your original loan documents.
Will my interest rate change over time?
Like most HELOCs, the BECU HELOC is an open-ended loan with a variable interest rate. This rate is based on the Wall Street Journal prime rate, plus or minus the margin. However, with a BECU HELOC, members have the option to take a fixed-rate advance3 and lock in their interest rate for a set period of time.
What is a fixed-rate advance?
A fixed-rate advance (FRA) is a subaccount of a member's HELOC Masterline account. FRAs are fixed-term loans with a maximum loan term of 15 years. They require principal and interest payments. Members can have three FRAs active at once, but can have as many FRAs as they like over the life of the loan.
Here's how it works:
Select any sum of $5,000 or higher (up to the total of your loan amount)
Select a term up to 15 years (depending on the amount fixed)
Lock in your interest rate (rate based on FRA rate when the FRA is taken out)
Have up to three different fixed-rate loans at one time
Will I have to pay an annual fee?
No. BECU does not charge annual fees on HELOCs.
Will getting a HELOC hurt my credit score?
Applying for any loan will ding your credit score a little bit. That's why getting a HELOC is likely to lower your credit score on a temporary basis.
Are HELOCs tax-deductible?
The interest may be tax-deductible; however, the eligibility depends on various factors. Individuals should consult with their financial adviser and/or attorney for advice.
Can I use my rental property to fund a HELOC?
Yes. Primary and secondary residences and investment properties are eligible. Investment properties must be located in Washington State.
Can I transfer a HELOC from another institution?
If you have a HELOC at another institution, it's a great time to consider refinancing with BECU. In order to refinance your HELOC with BECU, you will need to apply and fund a BECU HELOC, then use it to pay off your existing HELOC at the other institution. You can apply online or at a Neighborhood Financial Center. Please note, you may be charged a reconveyance fee from the other financial institution when transferring your HELOC to BECU.
Do I have to be a BECU member to apply?
No, you do not have to be a member to apply. However, the primary applicant will have to become a member before the loan is funded.
How do I access the funds?
The line of credit appears as an account in your BECU Online Banking, and you can easily initiate a free, same-day transfer to your checking account2.
1You 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, payments equal monthly payments of interest, subject to the lesser of $100 or your balance and the principal is not reduced. At the end of the draw period, your monthly payments will increase equal to the principal and interest amount necessary to pay the loan balance over the remainder of the loan term amortized over 180 months. 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). Certain third party costs may apply that range between $0-$1,999, depending on the location of the property, the amount of the loan, and other factors. 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. 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.
2Minimum draw amount is $100.
3The rate for a Fixed Rate Advance (FRA) ranges from 4.59% to 9.59% APR as of 10/01/2019. 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.