What Is a HELOC and What Do You Need to Know?

If you are a homeowner in search of a way to fund a large renovation project or consolidate debt, your home could be your greatest resource. By using your home’s equity, you may be eligible for a loan with lower interest rates and more flexible requirements than other types of credit. One popular way to access these funds is through a home equity line of credit, which is often called a HELOC.

Watch this video to see how a HELOC through Scott Credit Union can help fund your next home renovation project.

HELOC Explained

A HELOC is a revolving line of credit that lets you borrow against the equity in your home as you need it. Think of it like a second mortgage. If you already own your home in full, the HELOC becomes your primary mortgage.

Because this credit line is secured by your home, it typically offers a much lower interest rate than unsecured debt like credit cards. When you choose a HELOC through Scott Credit Union HELOC, you’ll have a low closing cost and no annual fee.

How to Qualify for a HELOC

Understanding how to qualify for a HELOC is the first step in the process. Lenders look at several factors to determine your eligibility.

HELOC Requirements

To qualify, most lenders look for a solid credit history and a manageable debt-to-income ratio. The most important factor, however, is your home’s value and your loan-to-value (LTV) ratio. While many institutions limit borrowing to 80% of your home’s value, Scott Credit Union allows qualified members to borrow up to 90% of their home’s equity. 

To estimate your maximum borrowing power, multiply your home’s current value by the maximum LTV allowed by the lender. Then, subtract what you still owe on your mortgage.

Example Calculation:

• Home Value: $250,000
• Max LTV (90%): $225,000
• Current Mortgage Balance: $100,000
• Maximum HELOC Amount: $125,000

Scott Credit Union offers loan amounts ranging from $10,000 up to $500,000 to help meet your specific needs. 

HELOC Repayment Terms

A HELOC typically has two distinct phases: the draw period and the repayment period.

• The Draw Period: At Scott Credit Union, this period lasts for 10 years. During this time, you can borrow as much or as little as you need up to your credit limit. You have the flexibility to borrow only what you need when you need it. You can easily access your funds through Digital Banking, by using a HELOC check, or by visiting a local branch.
• The Repayment Period: Once the 10-year draw period ends, the line of credit enters a 15-year repayment period at Scott Credit Union. During this phase, you can no longer withdraw funds and will make monthly payments toward both the principal and the interest.

HELOC vs. Home Equity Loan

While they both use your home as collateral, there are major differences in how you receive and repay the money.

• Lump Sum vs. Flexibility: A home equity loan provides all the cash upfront in one bundle. A HELOC acts more like a credit card where you only take what you need when you need it.
• Predictability: Home equity loans usually have fixed interest rates and consistent monthly payments. HELOCs offer more flexibility but may have variable rates that change over time.

A home equity loan might be the right choice if you have a specific, one-time expense. However, many homeowners prefer the flexibility of a HELOC for ongoing projects or as an emergency fund.

Start Your HELOC Journey With Scott Credit Union

If you are ready to put your home’s equity to work for you, Scott Credit Union is here to help. Our team can walk you through the application process and help you find a solution that feels right for your financial goals.

Learn more about HELOC options with Scott Credit Union today!