Home Equity Line of Credit

A home equity line of credit, or HELOC, is a revolving credit line available to qualified members to use for any large expenses.* It allows members to use the equity in their home as a form of collateral for credit purposes. The borrower is able to make purchases or take out money (to a certain limit), make payments back to the line of credit, and then use the line of credit again in the future when another need arises.

For example, if you own a home and have paid off enough of your mortgage to build up equity, a HELOC could provide you the funds you need to make home improvements, consolidate high interest debt or student loans, pay for a dream vacation or your child’s wedding or college tuition, or practically any other large expense.

A home equity loan is a fixed-term loan given by a lender to a borrower based on the equity in their home. Borrowers apply for a set amount that they need, and if approved, receive that amount in loan proceeds all at once. The home equity loan has a fixed interest rate and a schedule of fixed payments for the term of the loan, so the monthly payment does not change for the term of the loan.

With a home equity line of credit (HELOC) borrowers are allowed to tap into the credit line as needed. The line of credit remains open until its term ends. Because the amount borrowed can change, the borrower’s minimum payment can also change, depending on the credit line’s usage. HELOC’s are variable rates during the draw period and then turn into a fixed rate, fixed payment during the repayment portion of the term.

Every situation is different and depends on your individual financial needs. Our dedicated lending team will be able to provide guidance if you are unsure whether a home equity loan or home equity line of credit is right for you.

The advantages of a HELOC are that there are no payments or interest accruing unless you make a withdrawal on the line of credit. Typically, HELOC’s also provide a lower interest rate compared to a personal loan or credit card. They are great to have available for unexpected expenses or to use in emergency situations.

The disadvantages of a HELOC is that the rate is variable during the draw period and can change if the  Prime Rate (as stated in the Wall Street Journal) changes.

The draw period is the length of time (10 years) where you have access to the line of credit funds and may draw on the line. The repayment period (15 years) only takes place if you have a balance left over at the end of the 10 year period. If there is no balance, there is no 15 year repayment period.

The best way to find out the exact requirements for a home equity line of credit is to speak with our knowledgeable HELOC lending specialist. Kohler Credit Union takes several factors into consideration when it comes to lending decisions, included but not limited to credit score, payment history and home value.