Top 5 Reasons to Take out a Home Equity Line of Credit

Posted April 27 2016
by PenFed Team
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If you’re in need of cash to cover major expenses, you might consider maxing out your credit cards or taking out a high interest loan but these may not be your best options. If you’re a homeowner, you have another source of cash you can tap into: the equity on your home. Doing this gives you great interest rates—lower than you’ll typically find on a credit card or personal loan—and the interest paid is typically tax deductible, making it one of the least expensive ways to borrow.

Borrowing against your home equity with a home equity line of credit (HELOC) rather than a regular equity loan will also give you a great deal of flexibility, which makes them ideal for a variety of financial uses. Instead of giving you a lump sum up-front, a HELOC lets you get cash on a line of credit secured by your home’s equity when you need it—great for ongoing or unpredictable expenses. In the end, you only pay off what you’ve used.

So just what should you use your HELOC for?

We have some suggestions:

Home improvement.Though remodeling and repairs can be costly, borrowing against your equity can be an easy way to make projects happen—especially if your home’s value has gone up since you purchased it, giving you more equity to work with. If you’re planning on selling, and want to fix up your home before putting it on the market, borrowing against your equity has even more appeal. If your improvements add more value to the homethan they cost, you may even make money when you sell. Using a line of credit is ideal here, because you can take out money as you need it to pay contractors and cover other expenses.

Debt consolidation.If you’re struggling with credit card debt, borrowing against your equity can be extremely attractive because of the low interest rates—much lower than any you’ll find on a credit card—using a HELOC to pay off other debts will give you an easy single payment at low interest rates. This not only means saving cash, but also cutting stress as you’ll no longer need to keep track of multiple bills and due dates. Just be careful not to use your now zero-balance credit cards to rack up more debt, or you’ll eventually be right back where you started.

Education expenses.College costs are a huge expense, but a home equity line of credit can be a good way to pay for it. Not only will you have a lower interest rate than you would with a student loan, but having a line of credit allows you the flexibility to take out as much cash as you need every semester to pay for tuition, textbooks, and other expenses.

Weddings, vacations, and other big ticket items.While you never want to skimp on weddings, honeymoons, or that dream family vacation, these things can be tough to pay. Borrowing against your equity lets you get exactly what you need, right now, and lets you pay it back later at reasonable interest rates.

Covering emergencies.Though you should certainly have an emergency fund to help cover unexpected expenses, there’s always the chance of running into an emergency that’s larger than your emergency fund. While you might put any excess on a credit card, the interest rates can be a burden—and you can be easy to run into your credit limit. A HELOC can help you get the cash you need—especially if they’re medical expenses or repair expenses spread out over time—without racking up big interest bills.

PenFed offers home equity lines of credit of up to $400,000 with interest rates as low as 4.25% APR*—and, best of all, PenFed will pay most of your closing costs¹ to keep your up-front expenses low.

All rates and offers are as of July 2017 and subject to change without notice.

*Prime Rate is 4.25% as of June 16, 2017. There is a minimum floor of 3.75% APR and a maximum rate of 18% APR.

Typical closing costs range from $250 to $750 depending on the loan amount and county where property resides. Rates depend on the owner occupancy and LTV. The maximum LTV for condominiums is 80% in all states. The maximum owner occupied LTV is 90% and non-owner occupied LTV is 80%. The maximum CLTV in Texas is 80% with an ELOC amount not exceed 50% of market value, regardless of equity available. Additional restrictions apply in Texas. Owner occupied properties are as low as Prime Rate + 0%, with a minimum floor rate of 3.75% and a maximum rate of 18%. Non-owner occupied properties are Prime Rate + 1%, with a minimum floor rate of 4.75% and a maximum rate of 18%. ELOC minimum loan amount is $10,000 and maximum $400,000 up to 85% LTV. For LTVs of 85.01-90%, the maximum loan amount it $250,000.

¹Closing Cost Credit: PenFed will pay most closing costs associated with an equity line of credit (ELOC) which includes: credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, city/county taxes, state taxes, property search and quick close. If an appraisal is required, the cost will be paid by the member, who is responsible for the fee whether or not the loan closes. The member is responsible for notary fees. Should this loan be paid off or closed within 24 months (36 months for 5/5 ELOC) from the anniversary date of the loan closing, the member will be obligated to pay PenFed the full amount of the total closing cost for the loan. Other terms and conditions apply; call 1-800-970-7766 extension 6400 for details.

See your tax advisor for details on tax deductibility of interest.

Home Equity Lines of Credit are variable rate loans and the interest rate may increase after consummation of the loan.