HELOC: When One Addition Leads to Another
They say there’s always enough room in your heart for another child. But are there enough rooms in your house?
A HE-what?
New to the world of HELOCs?
A HELOC is a form of financing that lets you borrow money against your home equity. Your home equity is the difference between the market value of your home and the balance due on your mortgage. You can gain equity in two ways: when you pay down your mortgage principal, and when your property increases in value.
Here’s a quick example. Five years ago, Luke and Akari bought a house in Shoreham for $450,000 with a 10% down payment. On their first day as homeowners, they had $45,000 in home equity. Since then, they’ve paid down their mortgage principal by $65,000, leaving a balance of $340,000. Meanwhile, the value of her house has increased to $550,000.
At Suffolk Credit Union, our home equity products allow members to borrow up to 80% of their home’s value (this is called a loan-to-value-ratio, or LTV). In Luke and Akari’s case, that’s $440,000. Subtract the amount they’re already borrowing (their mortgage balance of $340,000) and you get $100,000. That means with a HELOC from Suffolk CU, Luke and Akari can access up to $100,000 in cash to help pay for their new additions – or just about anything else.
HELOCs vs. Home Equity Loans
Homeowners have two basic options for when one addition leads to another: HELOCs and Home Equity Loans. To understand the key distinctions, you can think of a HELOC like a credit card and a Home Equity Loan like a mortgage.
With a credit card, you have a credit limit of, say, $10,000, but that doesn’t mean you have to spend all $10,000, or spend it on a set schedule. Instead, you can use those funds when needed and only pay interest on the amount you actually spend. By paying down your balance, your available credit is replenished, and you can borrow those funds again (this is what’s known as revolving credit). HELOCs work in a similar way, with one main difference: Our HELOCs allow you to make interest-only payments during the first 10 years (the draw period), after which you can repay all remaining principal and interest in monthly installments over 20 years.
Contrast that with a mortgage, which gives you one lump sum upfront. In the case of a primary mortgage with a fixed interest rate, that amount goes right to the home seller, and you pay off the principal and interest in predictable monthly payments over time. This is also how our Home Equity Loans work.
Home Equity Loans can be a great option for funding major purchases, consolidating high-interest debt, and other situations where you know exactly how much money you need and when. But for Luke and Akari, a HELOC is the ideal solution, because they’re not certain of how much their renovation project will cost, when those bills are due, and any other joyful surprises that might come their way.
5 More Benefits of a HELOC
The main advantage of a HELOC is that you can use it however you want and only pay for what you use. Here are five more valuable perks to consider:
- Save with attractive rates: Enjoy a special intro APR* as low as 6.24% for 15 months, followed by a competitive variable rate as low as 8.00% (as determined by your creditworthiness). Plus, explore our Fixed Rate-Lock Option that lets you draw set amounts at set rates.
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Forget closing costs: We’ll cover the closing costs, except the appraisal fee, for any HELOC up to $500,000 on a primary residence in New York State.**
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Get approved fast: At Suffolk CU, we process applications and make loan decisions locally, which helps us provide a quick and convenient process. Many borrowers get their funds within just a few weeks.
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Effortlessly access funds: Once approved, your HELOC will appear as an account within Online Banking. You can make instant transfers to your Suffolk CU checking account or make purchases directly with the convenience checks we’ll provide.
- Potentially boost your credit: If used strategically, a HELOC can help you enhance your credit profile. Because it’s secured by property, HELOCs aren’t typically figured into your credit utilization ratio like other forms of revolving credit. Consistent payments can lead to higher scores, and if you use a HELOC to pay off credit card balances, you could get another boost.
HELOC
Real Life, Made “Real Easy”
It only takes a few minutes to apply for a HELOC online. Any questions? Feel free to give us a call or stop by any branch for personalized guidance from our friendly local team.
* APR = Annual Percentage Rate. Rates reflect automatic payment discount of 0.25%. Introductory APR is based on your creditworthiness and will range from 6.24% to 9.74% APR. Lines up to $100,000 require minimum $15,000 initial advance and maintain a balance of $10,000 during the time period in which the introductory rate is offered to maintain that introductory rate; lines between $100,000.01 and $250,000 require a minimum $35,000 initial advance and maintain a balance of $25,000 during the time period in which the introductory rate is offered to maintain that introductory rate; and lines between $250,000.01 and $1,500,000 require a minimum $65,000 initial advance and maintain a balance of $50,000 during the time period in which the introductory rate is offered to maintain that introductory rate. After the 15 month introductory period, APR is based on the Prime Rate as published in the Wall Street Journal plus a margin which is based on your creditworthiness. The minimum rate is 3.00% APR and the maximum rate is 18.00% APR. The HELOC is a variable rate loan. After the introductory period the APR may change monthly. Making minimum payments only may result in a balloon payment. Non primary resident properties will get an increase of 3% to the intro rate.
**Suffolk Credit Union will pay closing costs on Home Equity Loan amounts up to $250,000 on primary residences located in New York State only. Suffolk Credit Union will pay closing costs, except the appraisal fee, on Home Equity lines-of-credit amounts up to $500,000 on primary residences in New York State only. For Jumbo HELOCs on primary residences, the borrower pays for title insurance and the mortgage tax on the amount over $500,000. The member is responsible for all closing costs on secondary and investment properties and all properties located outside of New York regardless of the amount of the loan. If you pay off and close your loan less than 36 months from loan origination date, you will be required to reimburse all closing costs paid by Suffolk Credit Union. For a Home Equity Line-of-Credit: Minimum loan amount is $20,000. Maximum loan amount is $1,500,000. The length of the repayment period will depend on the balance at the time of the last advance you obtain before the draw period ends. Monthly payments required during both the draw and repayment periods. During the 10-year draw period your minimum monthly payment will equal the finance charges (interest) that accrued on the outstanding balance during the preceding month. Payment calculation is based on 20-year amortization. Hazard insurance is required. Available on 1–4 family primary or secondary residences, excluding mobile homes, co-ops and homes for sale, under construction or on leased land. Applicants who are not approved at these rates may be offered credit at a higher rate.
Rates and terms are subject to change without notice. All offers of credit are subject to credit approval requirements and applicants may be offered credit at higher rates and other terms. Loan-to-Value (LTV) and/or Combined LTV (CLTV) restrictions apply. Available on 1- to 4-family primary or secondary residences, excluding mobile homes, co-ops and homes for sale, under construction or on leased land. Hazard insurance is required on all loans secured by real property (flood insurance may also be required where applicable). Membership at Suffolk Credit Union is required by opening a minimum $5 share savings account at or prior to HELOC account opening.
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