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Being recently new to the world of financial institutions, there is always room for more information about the various products/services offered by any financial institution (FI). One product that can always use more explanation is the Home Equity Line of Credit (HELOC) and how it works for me, the consumer. Here is what I am happy to share and hopefully will be able to increase your knowledge of a HELOC and how it can be beneficial to the consumer.
A HELOC is a line of credit, funds made available to a consumer, through home ownership. The Line of Credit is sourced from the funds the consumer owns in his/her home. Also known as the available equity in the home. Hold on, there might be a lot there to understand so, here is an example: If my home value is $100,000 and I have put down against the total borrowings to buy the home 20% or $20,000 of the home’s value, my immediate equity in the home is $20,000 while the face amount of my mortgage due to my down payment is reduced down to $80,000 ($100,000 home value less the $20,000 down payment). I would also ask readers to make note here of “20% of my home value.” I do so because a mortgage holder may forego Private Mortgage Insurance if they have made a down payment of 20% or more of the home’s value (some terms and restrictions apply). By making a down payment of $20,000, I have also created $20,000 of paid equity or paid ownership against the mortgage of $80,000. It is real money, real value I own in my home.
In this next example, using the numbers from immediately above, let’s say that the appraisal, or home value, for the home more than twelve months after taking out the mortgage, now came in at $110,000. Meaning my home I borrowed $80,000 for is really valued at $110,000 so my added equity in the home due to market appraisal is an additional $10,000. Together, the 20% or $20,000 I paid up front on the borrowing amount to buy the home plus the $10,000 in market value translates to $30,000 in ownership or equity in my home.
Typically, a home owner cannot borrow 100% of their equity in their home, but can often borrow a good portion of the amount depending on the needs of the owner, their personal financial situation, market outlook, and their credit history. The amount granted is a revolving source of funds, much like a credit card, that means the home owner can access the funds on an “as you want” basis. Most FIs offer a number of different ways to access those funds, whether it’s through an online transfer, writing a check, or using a credit card connected to your checking account. Unlike a home equity loan (note not Line of Credit as discussed here in this article but a loan, in this particular instance), Lines of Credit tend to have few, if any, closing costs, and they usually feature variable interest rates—though some lenders offer fixed rates for a certain number of years.
There are pros and cons to the flexibility Home Equity Lines of Credit offer. The home owner can borrow against their credit line at any time, and untapped funds do not get charged interest. In that way, it’s a nice emergency source of funds (as long as your FI doesn’t require any minimum withdrawals) for the home owner. A home owner will only make payments on the funds borrowed. If there are unused funds available, it’s a source of funds, but since not being used by the home owner, they also will pay no interest on this unused portion of the Line of Credit.
Especially now, if COVID-19 has interrupted your cash flow, you may want to look into an existing HELOC to fulfill your cash needs in addition to speaking with your lender regarding any cash needs. So, if able, consider starting to build something new, refinish something old, or buy something you have always wanted. With DuTrac’s Home Equity Plus Line of Credit, building a strong foundation for your future is a lot easier to accomplish with the right tools. It’s your money... USE IT!
The Home Equity Plus Line of Credit includes:
- A one-time application
- Access to your line of credit 24 hours a day, seven days a week
- A low, variable interest rate
- A 10-year draw period without re-qualifying
- Repayment terms up to 15 years
- Automatic payments and direct deposit
Home Equity Plus Line of Credit Promotion:
With an introductory rate as low at 1.75% APR*. Then, after December 31, 2021, rates as low as 4.49% APR*.
*The 1.75% introductory APR (Annual Percentage Rate) is for credit qualified members who open a new Home Equity Line of Credit (HELOC) with DuTrac on or before September 30, 2021. After December 31, 2021, the floor rate will convert to either 4.49% APR for borrowers with a credit score of 720 or higher or 5.24% APR for borrowers with a credit score between 670 and 719 with the best rate effective on January 1, 2022. Rate after December 31, 2021 is based on the 13-week U.S. Treasury Bill Index. Account holder’s rate is based on standard credit qualifications and approval by authorized staff. Maximum 18% APR. Rates shown are for homeowners with a maximum 80% CLTV (calculated as first mortgage balance plus HELOC limit divided by property value). Introductory APR and floor rate APRs are accurate as of 04/01/2021. Minimum HELOC loan amount is $10,000. HELOC account holder is required to be a member of DuTrac Community Credit Union by purchasing $5 in membership shares. Membership Shares are placed in a share savings account. HELOC account holder must have direct deposit into a DuTrac share draft (checking) account with auto pay at all times the HELOC loan is available to account holder. Property insurance required. Property appraisal may be required with fees averaging an estimated $150 – $450. Total closing costs may range from $0 to $450. Finance charges will begin to accrue only after a draw on the new HELOC is taken by the account holder. No grace period applies. Not valid for existing HELOC or a refinanced HELOC currently at DuTrac. Not valid with any other offers. Offer may end at any time without notice. Offer is no longer valid after September 30, 2021.
If you would like further information regarding DuTrac’s home equity options, please contact a financial services consultant by email at firstname.lastname@example.org, by phone at (563) 582.1331 or (800) 475.1331, or stop into any of DuTrac’s convenient locations.