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What is a HELOC?

A home equity line of credit, often called HELOC, is a loan where the collateral is the borrower’s equity in his/her house.  It’s a revolving line of credit, similar to that of a credit card, which can be used as needed over time. The difference between a HELOC and Home Equity Loan is that with a Home Equity Loan, the money is typically taken in a lump sum for a specific amount.

Many homeowners use HELOC’s for the following:

  • Education
  • Home Improvement
  • Medical Bills
  • New/Used Vehicles
  • Taxes

Typically, a HELOC has a better annual percentage rate, or APR, than a credit card or personal loan, which at WCFCU, it would be the prime lending rate + .50%. The prime lending rate is set by the Federal Reserve Bank and adjusted on a quarterly basis.


How to determine what a qualified buyer may be able to borrow

With the HELOC’s at WCFCU, the minimum line of credit is $5,000, and the minimum advancement on a home equity is $500. Additionally, qualified buyers can borrow up to 80% of the value of the home, up to $200,000.

For example, let’s say that the Appraised Value of your home is $100,000, and you still owe $20,000 on it. We would take the value of your home, $100,000 x .80% to get up to the 80% value which would be $80,000. Then since you still owe $20,000, we would then subtract that from the $80,000 which would give you $60,000. The $60,000 is the amount that a qualified buyer could potentially be approved for depending on their debt to income ratio and credit.

The only fee’s involved with establishing a HELOC would be an appraisal of your home if we are unable to use the Tax Assessment Appraisal. This would typically be about $500. In addition, there would be a $100 attorney fee for a title update.

The most important thing to know about a HELOC is that if your loan goes into default, your home would be at risk.

HELOC’s are a great way to take advantage of the equity of your home. If you have any additional questions or would like to understand if a HELOC is right for you, please contact one of our loan officers, Ken or Lynn.