How does a HELOC loan work?
A HELOC is a lot like a credit card. When you have a balance you have a payment, but if the balance is zero, there is no payment. Each month’s payment is based on the current outstanding balance.
A HELOC is a loan that lasts for 20 years. During the first 10 years you can withdrawal any amount up to your credit limit to use for any legal purpose. You control how much is taken out on each withdrawal. Additionally, any payment that exceeds the minimum payment due will reduce the balance on the loan making the next month’s minimum payment lower.
How are payments calculated?
Minimum payments for the first 10 years are based on the interest due from the outstanding balance. We compute the interest on a daily basis and provide a monthly statement so you know the minimum due on the 15th of each month. A good way to estimate the minimum payment is to take the interest rate, multiply it by the balance outstanding, and divide by 12. For example $10,000 balance X interest rate of 4.25% (.0425) / 12 = $35.42 estimated minimum payment.
After the 10 year draw period has expired, the loan converts to a fully amortizing loan for the remaining 10 years. What this means is that the payment will be calculated each month so that the payment amount will bring the loan to zero by the end of the 10 year amortization period. The fully amortizing payment is usually two to three times as much as the interest only payment during the 10 year draw period. Sometime near the conversion to the amortization period, many Members opt to renew their HELOC so they can continue to have the ability to draw on the account.
Are there closing costs for a HELOC?
We pay the closing costs on HELOCs for loan requests of $100,000 or less. If you request a HELOC in excess of $100,000 we will send you an estimate of the closing costs which includes title insurance charges, applicable taxes, and government recording fees, along with the other costs associated with obtaining the loan. Should you decide to close out your HELOC within three years of obtaining it, we will ask you to reimburse the Credit Union for the lesser of the actual closing costs paid by the Credit Union or $400. Paying off your HELOC is not the same as closing the loan. You can pay your balance to zero and maintain a zero balance for months and the loan will not be closed. The line can be closed by specific request or by selling the property.
Can the interest rate change?
Interest rates on HELOCs are variable rate loans which means the rate can rise and fall as the PRIME rate goes up and down. There has been one PRIME Rate increase in the last nine years and it’s published weekly in the Wall Street Journal. Currently PRIME Rate is 4.25% and your HELOC rate will be based on your creditworthiness.
How long does it take to get a loan approval?
Initial loan approvals are typically made by the next business day. Because a HELOC is a loan backed by the equity of your home, a property valuation is prepared and validation of clear title, evidence of insurance and income, along with other federal requirements are completed before a HELOC loan is granted. Typically the loan receives final approval within two to three weeks from receiving required documentation.
If you have additional questions, please contact the professionals in our Mortgage Team at firstname.lastname@example.org or 800.873.5100, ext. 7722.