October 22, 2021
They say that money is only useful if it’s moving. For that reason, many people choose to put the equity they accrue through their on-time mortgage payments to work by financing purchases and services through a home equity loan or home equity line of credit, otherwise known as a HELOC. However, financial institutions are not all created equal, and a credit union HELOC may offer distinct advantages over a bank or an online lender. Let’s look at the advantages of a HELOC in general and any specific advantages of using a credit union.
#1 HELOCs Have Fewer Restrictions on the Way You Use Your Funds
For everything from home improvements to college tuition to a family vacation, you have the flexibility to use your HELOC funds however you choose. This offers you options that are customized for every phase of your financial life.
Because your HELOC is tied to your home’s equity, you’ll want to be mindful of how you use your funds. Stay aware of your home’s current value so that you can avoid overextending yourself when borrowing from your HELOC.
#2 HELOCs Offer Flexibility for Financial Needs Now and Later
With a one-time home loan or cash-out refinance, you’ll receive a lump sum payout, then a structured repayment plan. Need additional funds a year down the road? You’ll have to start the process all over again.
By contrast, a HELOC can offer you the flexibility to borrow what you need, repay it, then borrow additional funds later. This may mean home improvements now and tuition a few years later, all from one convenient process.
#3 HELOCs Offer Lower Interest Rates than Commercial Credit
HELOCs offer favorable interest rates to members every day. Now compare those low-interest rates to the sky-high rates charged by many credit card companies, and you’ll see that HELOC rates can save you thousands over the cost of commercial credit options.
In addition, some service providers don’t take credit cards, so finding financing options may be complicated for some home repairs and improvements. With a HELOC, you can pay the provider directly, then pay off your line of credit over time.
#4 Interest May or May Not Be Tax-Deductible
The Tax Cuts and Jobs Act of 2017 changed the home interest deduction, including the tax deductions offered by home equity lines of credit. However, your HELOC may still offer tax advantages, depending on how you use it.
We cannot give tax advice. So, check with your accountant to find out the specifics. And in the meantime, save your records and receipts for any home improvements you pay for with your HELOC.
#5 HELOCs Let You Use as Much or as Little as You Need
We’ve all guesstimated how much we would need for a repair, home improvement, or purchase, then found out that our guess was off by hundreds or even thousands of dollars. If you took out a loan or opened a credit card based on an incorrect estimate, you might be left holding the bag for additional costs or regretting that you financed too much.
However, with a home equity line of credit, you can use as much or as little of your available funds as your project requires. That means that if the scope of work changes — or you cancel the project altogether — you can adjust your funding as needed.
#6 HELOCs Have More Flexible Repayment Options
A home equity line of credit may offer you various ways to pay, along with a range of payment windows. In some cases, you can choose from fixed or variable interest rate scenarios as well for a more predictable repayment plan.
Some HELOCs last for the life of your home loan, while others may have a fixed repayment window. In addition, while some amortization schedules front-load the interest for your repayments, they may also allow you to pay down the principal and save money over the life of the HELOC. Check with your credit union to see what their specific repayment options are.
#7 HELOCs Can Consolidate Your Debt as Needed
Perhaps you have had some unexpected expenses or have run up some credit card bills. Maybe you have experienced an illness and are paying off medical debt. With a HELOC, you can consolidate your various debts under one convenient, low-interest loan.
Managing your debt can be complicated, with a variety of interest rates and terms prevailing for different types of financing scenarios. By keeping them all together in one loan you’re not subject to the whims and changes of multiple creditors or confusion about due dates and payment plans.
#8 Credit Unions are Non-Profit & Member Owned
Credit unions offer two big advantages over commercial banks and other lending institutions. First, they are non-profit entities, so they enjoy significant tax advantages over commercial lenders, and they may pass these savings onto their members. Second, credit unions are owned by their members and are not publicly traded, so they are not obligated to provide value for shareholders.
How do these two facts create value for you as a credit union member? They are the reasons that credit unions can pass on such significant savings to their members. That means that the interest rate on your credit union HELOC may be even lower than that offered by other lenders.
#9 Credit Unions Let You Manage Your Financial Life in One Place
Imagine having your checking and savings accounts in one place, your car loan in another, your credit cards elsewhere, and your home loan is yet with another financial institution. Now imagine trying to consolidate or manage those accounts in all of those different places.
With a credit union that offers a variety of financial services, you’ll enjoy the streamlined convenience of an all-in-one financial solution for life’s most challenging moments. Easily transfer money from one account to another and talk with your credit union loan advisor whenever you need to update your financial plan. Compare that to a mortgage broker that only offers home loans.
#10 Enjoy the Benefits of Credit Union Membership
When you’re a member of a credit union, you enjoy financial services that are focused on what’s best for you — not what’s best for shareholders or your financial institution’s stock price. Because many credit unions are designed for specific users — like members of the military, specific professional groups, or certain geographic locations — the products they provide offer value targeted to their members' needs.
Considering a credit union HELOC? Talk to your trusted credit union lender and find out if this is the right option for your unique financial needs.
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