05 Feb

What is a HELOC and Why Should You Have One?

Home Equity Line of Credit (HELOC) piggy bank under a house

In many places, home values have grown considerably for recent years, providing homeowners an opportunity to tap into the equity of their homes to make renovations or otherwise boost their overall financial picture.

Although a home equity line of credit (HELOC) may be a good way to quickly access cash, it is important to proceed with caution and have good reason to do so. We’ll explain the ins-and-outs of a HELOC and some reasons why getting one could be the right move for you.

What is a HELOC?

A home equity line of credit, or HELOC, is a second mortgage that gives you access to cash based on the value of your home. You can draw from a home equity line of credit and repay all or some of it monthly, similar to a credit card.

You borrow against your equity with a HELOC which is the value of the house minus the amount that you owe on the primary mortgage. Which means:

  • You might lose your home to foreclosure if you don’t make the payments because you’re using your home as collateral.
  • To get a HELOC you need to have plenty of equity. Typically, a HELOC allows you to borrow up to 85% of the value of the home subtracted by the amount you owe on the loans.

For something like a major repair or remodeling project that increases your home value, taking out a HELOC would be great. You should not get a HELOC if you’ll be putting yourself at risk of losing your home because you are unable to pay back what you are borrowing.

How Does it Work?

A HELOC works kind of like a credit card. You will borrow money up to a certain credit limit set by the lender and then pay it back, along with interest, the borrowed amounts. This option can offer more flexibility and you can even withdraw and make payments daily or weekly.

How Much Can You Borrow?

The credit limit for a HELOC depends on a number of factors, including your income and outstanding loans, but it is largely determined by the market value of your home and the amount you owe on your mortgage.

Say you have a $500,000 home on your first mortgage with a balance of $300,000 and your lender allows you to use up to 85% of your home’s equity. You may receive a HELOC with a limit of up to $125,000:

  • $500,000 x 85% = $425,000.
  • $425,000 – $300,000 = $125,000, your maximum line of credit limit.

What Would I Use a HELOC For?

A HELOC is commonly used for home repairs and upgrades. If you use the money to buy, build, or substantially improve your house, the interest on your HELOC may be tax-deductible.

Some people also use home equity lines of credit to pay for education. You should not use a HELOC to pay for vacations and vehicles because those expenses do not build wealth, and if you default on the loan, you run the risk of losing the home.

How to Get a Low-Interest Rate

 You can automatically get a low-interest rate just by being a member of RMLEFCU! A good credit score can lower your interest rate even more. Order your free annual credit report from one of the three credit offices (Experian, TransUnion or Equifax) or check the RMLEFCU app to check your credit score. If you’re close to the cutoff lines between a good and excellent score, spend some time and raise your score before you apply for the HELOC.

When you’re ready to have a little extra cash, give RMLEFCU a call at 303-458-6660 or email lending@rmlefcu.org. We’ll get you the best rates.

06 Feb

Understanding Home Equity Lines of Credit (HELOC)

HELOC on laptop computer

Sometimes life throws you curveballs like needing to update your kitchen or fix a leaky roof. Home improvement projects are rarely cheap, but a HELOC is great for providing you with the funds you need to get them done. RMLEFCU has competitive, variable rates for several recurring or one-time needs consisting of major life events, home remodel projects, debt consolidation, and more!

But before you get into signing the papers, what exactly is a HELOC? Don’t worry, we’ll explain everything so you can become an expert on Home Equity Lines of Credit and fix up your home!

What is a HELOC?

A HELOC or a Home Equity Line of Credit, allows homeowners to borrow money against the equity they’ve built up in their home, which is the difference between your home’s value and your mortgage balance.

HELOCs can provide numerous opportunities for flexibility in borrowing; however, they are limited and carry the risk of foreclosure. Opening a HELOC can require considerable discipline, but we’re here to help keep you on track.

How does a HELOC work?

A HELOC is similar to a credit card where the borrower uses a line of credit to borrow amounts that total no more than the credit limit, instead of advancing the entire sum up front.

HELOC funds can be withdrawn during the “draw period” which typically ranges from five to 25 years. After the draw period comes repayment which consists of the borrower repaying the amount withdrew plus interest. There may be a minimum monthly payment required during the draw period which often consists of “interest only”.

What is the length of a HELOC term?

The length of a HELOC can vary up to 30 years, with a 10-year draw period and a 20-year repayment period. While borrowers can choose to withdraw the available money immediately, lenders can structure HELOCs as long-term relationships.

At RMLEFCU, our HELOC repayment terms are up to 15 years and your funds are available anytime, without reapplying. You only need to apply once and can use it repeatedly thereafter.

Are there any additional fees?

Annual fees can be included in HELOCs, including other fees such as transaction fees and closing costs. A lot of the terms and fees included with your HELOC are determined by the individual lenders. You will also pay interest on your HELOC. Most lenders offer a variable interest rate.

If you make interest payments with RMLEFCU’s HELOCs, those payments may be tax deductible.

Are there alternatives to a HELOC?

Home equity loans and HELOCs sound similar, but these two products are actually very different. Some of these differences might determine which option is better for your needs.

A home equity loan doesn’t allow for revolving borrowing, like the HELOC. Instead, the borrower gets all the money in a lump sum, up front, and spends the life of the loan repaying it. A home equity loan also carries a fixed interest rate, which can provide more security over the life of the loan. This may allow borrowers to plan more easily when putting together a budget for the loan’s repayment schedule.

RMLEFCU also has a home equity loan option with similar attributes to our HELOC loan! Depending on what you need the loan for, you should research which one will benefit your needs the most.

Call us today to discuss our low HELOC rates and put your home’s equity to great use! (303) 458-6660

20 Jul

HELOC vs. Home Equity Loan: Which is Better for You?

HELOC vs. Home Equity Loan

Many people think Home Equity Lines of Credit (HELOCs) and Home Equity Loans are the same thing because they sound alike. In reality, they have some similarities but are very different regarding how and when you access the funds. In this post we’ll discuss the differences between the two and describe a few reasons to use each.

HELOC vs. Home Equity Loan

So, what is the difference between a HELOC and home equity loan? While they both borrow against your home’s equity, they go about it a bit differently. A HELOC allows you to draw on your home’s equity on an as-needed basis with a variable interest rate acting like a credit card that uses your home as collateral. A home equity loan on the other hand, gives you a lump sum up front with a fixed interest rate. They both use your home’s equity as collateral backing which is why they are usually referred to as “second mortgages”.

Why a HELOC?

A HELOC tends to be a better option for those who need extra money over a long period of time. For example, if your kid is going to college and you need to pay tuition over the next 4 years, a line of credit is ideal. You simply borrow the amount you need when you need it and only pay off the amount you’ve used. Check out a few more reasons to use a HELOC.

Why a Home Equity Loan?

A home equity loan is a better option for those who need a set amount of money up front. For example, if you need a new roof that will cost $3,000 and you’re planning a family vacation that will cost about $5,000. An $8,000 home equity loan is ideal for this situation because you know exactly how much you need to borrow.

Different situations call for different types of home loans. Determine if you need a larger sum of money now or have a longer-term financial commitment that will require spread out payments. Have more questions? Stop by an RMLEFCU branch or call to speak to a loan specialist today! You can also check out these helpful videos to learn more.

RMLEFCU HELOC vs Home Equity Loan

A Home Equity Line of Credit (HELOC) Explained by RMLEFCU

25 May

How to Pay Off Student Loans Fast

student loans

If you’ve ever had student loans, you know that repaying them is no joke. Not only do the payments seem never-ending, but their high interest rates can add up very quickly. We’re here to give you a few tips that we’ve learned over the years to make paying off your educational expenses as quick and painless as possible.

Pay More Than the Minimum

We know paying more than the minimum payment each month is easier said than done, but if you find yourself with a little extra cash sometimes, it is best used to pay off your current debts. Some months you may only be able to make the minimum payment, and that’s okay. Just keep in mind that if you continue to pay only the minimum amount needed, you will end up paying more interest in the long run.

Make Extra Payments

Similar to the above point, making extra payments throughout the year will ultimately help you pay off your student debt faster and accrue less interest. This can be as simple as making an extra payment once every 3 months, for a total of 4 per year. That will lower your debt by 33% each year, making you that much closer to being debt free. Once you start making a habit out of it, the extra payments won’t seem so “extra” at all and your bank account won’t suffer in the long run.

Pay off High-Interest Debt First

This may seem like a no-brainer, but it is best to pay off loans with higher interest rates first to stop the “snowball effect” of accruing interest. It is most effective to pay off these high-interest loans with large lump sums, such as tax returns or holiday bonuses, to see the most return. When you pay off large amounts at a time, the interest can only be applied to the amount you still have left to pay, which will be quite a bit lower, depending on the amount of your lump sum payment.

Use a HELOC

Student loans are notorious for having sky-high interest rates that just seem to keep adding salt to the wound. HELOCs, on the other hand, have much lower interest rates, making the payments a bit more bearable. By paying off student loans by using a HELOC, you essentially swap out the interest rate for a lower one. For example, if your student loans have an interest rate of 8% and an RMLEFCU HELOC has a rate of 4.25%, by using the money from the HELOC to completely pay off the loan with an 8% rate, you now only have to make payments on the loan with the 4.25% interest rate. This means less of your hard-earned money is wasted on paying interest in the long run. We’d call that a win.

While there is no way to get out of paying your loans, by taking these tips into account, you can pay off your student debt as quickly and efficiently as possible. For questions about ways to pay off your student loans using a lower interest option, like a HELOC, visit our website or call a representative at 303-458-6660.

18 May

HELOC Vs. Home Equity Loan

Knowing the difference between HELOCs and Home Equity Loans can be confusing! In this video, Cary discusses the difference between RMLEFCU’s HELOCs and Home Equity Loans. HELOCs act similarly to a credit card using your home’s equity as collateral and receiving funds as you need them, while Home Equity Loans are more similar to traditional loans and you receive funds in a total lump sum up front also using your home as equity. To learn more about these two borrowing strategies, visit our website and check out our What is a HELOC and How Can I Use It.

23 Apr

How Do I Best Use My HELOC?

A home equity line of credit is a revolving line of credit that uses your past mortgage payments as collateral. Essentially, it’s a credit card that uses your house as a guarantee of your paying back the borrowed amount.

HELOCs are great for many things, but there are a few uses that we routinely find are more popular than others.

Home Repairs

Typically, HELOCs are best used on equity-building purchases. By using the money to repair and update your home, you are essentially using your home’s credit to increase its value and improve its quality. This makes your home’s value increase, which is a great idea if you’re looking to sell your home in the near future.

Home Renovations

Similarly, to home repairs, renovations can drastically increase the value of your home, making them a popular use of a HELOC. By adding square footage or updating an outdated kitchen or bathroom, you can quickly add value to your home and see a quick return if selling soon afterwards.

Debt Consolidation

Another great use for a HELOC is to pay off some of your debts. Since the interest rates on home equity lines of credit are usually much lower than those on other loans, using the money to pay off debts could help reduce your interest costs. Interest rates and amount of debts owed depend on individual circumstances, so it is best to investigate your specific interest rates beforehand.

Education Expenses

College tuition payments can be expensive, are usually due in large lump sums, and are notorious for having high interest rates. A HELOC is a great way to borrow the money to pay tuition bills all at once, and then slowly pay off the debt over a set repayment period. Home equity lines of credit tend to be a good alternative to student loans due to their low interest rates, which will save you money in interest payments in the long run.

HELOCs are a great line of credit option if you are looking to do home repairs and renovations or consolidate debt and education expenses. Their low-interest rates make them a popular alternative to other types of loans and allow you to use your previous mortgage payments as collateral. Next time you’re in the market for a loan, think an RMLEFCU HELOC first!

Have more questions or would like to apply for a HELOC today? Visit our website or give us a call at 303-458-6660.