Home Equity Loan & Line FAQs

Home equity is how much of your home you actually own. In other words, it’s the current market value of your home, minus what you still owe.

When you take out a home equity loan, the interest rate is fixed, and you get the money in one lump sum. Your payments remain the same, and your rates won’t change over the term of the loan. 

In contrast, a home equity line of credit (HELOC) typically has a variable interest rate—although UW Credit Union offers the option to lock in at low fixed rate. Also, a HELOC allows you to withdraw funds when you need them, up to your credit limit, during the term of the loan. For more details, check out this article.

There are a couple ways we obtain a value for your home for the purposes of a home equity line of credit.

• An electronic report called an Automated Valuation Model
• An appraisal ordered by UW Credit Union (an additional cost applies)

The valuation option used depends on multiple criteria and is dependent on your request and personal situation. In most cases, an appraisal is not required.

You can use your home equity loan or home equity line of credit (HELOC) for just about anything. Popular uses include home improvements, college tuition, vehicle purchase and debt consolidation. People often turn to home equity for big milestones and life events, such as a wedding, education, moving costs, vacation, adoption or fertility treatment or other medical expenses.

Whatever your plans, home equity can provide the funds to make it happen. Maybe you want to use a low-rate HELOC to pay off higher rate debt, such as credit card balances or Parent PLUS loans. You might simply want to open a HELOC for emergency expenses and peace of mind, so you have fast access to cash if the roof leaks or the car breaks. The options are nearly endless.

As with all lending products, you'll want to act responsibly: only borrow what you really need and don't borrow more than you can afford to pay back.

You can access you home equity almost anytime. You may be able to borrow up to 100% of your equity, so even if you don't have a substantial amount of equity built up, you may still be able to take advantage of this great lending option.

Home equity loans and lines of credit are secured against the value of your home, which means if you don't make payments you can face serious consequences such as foreclosure and credit damage - the same as if you don't make your mortgage payments.

However, when you borrow from your home equity responsibly, you can benefit from lower rates and more favorable terms than other loan types, in addition to potential tax advantages. Home equity can be a great way to fund big plans, especially home improvement projects that add value to your home and enhance your quality of life.

The bottom line is to approach home equity loans and lines as you would any other type of lending product: you should have a reason for borrowing and a plan for how you'll pay it off.

Our lending experts can review your situation and help you decide what's best for your needs, budget and goals. Request a call to get started.

Like any loan or line of credit, making regular on-time payments helps your credit score. Missing or late payments will lower your score. When you apply for a home equity loan or line, we'll perform a hard credit pull, which is standard practice for all loan applications and may temporarily lower your score by a few points.

If you're applying for a mortgage at the same time, we may be able to perform just one pull for both your home loan and home equity. Ask your mortgage loan officer for more details.

One feature to keep in mind is that while a home equity line of credit (HELOC) is technically a revolving line of credit, it usually isn't classified as such in your credit report and therefore shouldn't affect your credit utilization ratio. (This ratio reflects how much of your available credit you use and is an important factor in determining your credit score.) This is good news - it means if you borrow 100% of your home equity with a HELOC, it shouldn't negatively impact your credit utilization ratio.

Learn more about credit scores and how to improve yours.

There are several easy ways to access the funds in your line of credit.

• Transfer funds from your line of credit to another UW Credit Union account directly from Web Branch.
• Visit a branch to get a cashier’s check.
• Request checks for your home equity line of credit.

With a home equity line of credit (HELOC) from UW Credit Union, you can borrow up to 100% of your home’s equity as a line of credit. It’s very convenient, and it works similarly to a credit card. Borrow what you need, when you need it, until you reach your credit limit. Here are more details about using your HELOC:

Withdrawing money during the draw period: This is the set amount of time (usually five years) that you can borrow from your line of credit. You can extend your draw period, depending on your credit situation.

Repaying during the draw period: During the draw period, you can make the minimum payments on what you’ve borrowed, however we encourage paying more to reduce the balance.

Repayment period: Once the draw period ends, you won’t be able to withdraw funds. At this point, your loan enters the repayment period, when your payments will include both principal and interest. These payments will be a lot higher than the interest-only payments you made during the draw period.

Credit cards and HELOCs both act as revolving lines of credit, meaning you can borrow funds up to a set limit. As you pay back what you borrow, you can use those funds again, and you pay interest only on what you borrow. Credit cards are typically used for everyday spending (groceries, entertainment, etc.) while your HELOC is best used to cover big expenses (home improvements, college tuition, etc.).

Both options include benefits - credit cards often offer rewards, cash back, purchase protection and more. HELOCs usually have a lower interest rate than credit cards, and interest may be tax deductible if it's used toward home improvements (consult your tax advisor).

One financial strategy that may give you the best of both worlds is to pay for big purchases with your credit card, so you can take advantage of your card's rewards program. Then, promptly pay off your credit card balance with your HELOC to enjoy the low rate and generous repayment terms. 

Request a call with a lending expert to learn more.

The introductory rate on the home equity line of credit begins as soon as you have access to the line of credit. Typically, this is three business days after your loan closing. The duration of your introductory rate will depend on the specific details of your HELOC offer. After that, any balances will be at the standard rate which is indexed to The Wall Street Journal Prime Rate.

Your home equity line of credit includes a five-year draw period which allows you access to the funds in your line of credit. At the end of the draw period, qualified borrowers may choose to renew the line of credit for another five-year draw period. Draw period renewal is free with a Value or Premium checking account or a $100 fee applies. Qualified borrowers may choose to renew the draw period up to two times.

The APR is subject to change monthly but cannot exceed 18%. APRs on the home equity line of credit also have a floor rate, depending on the product type.