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MORTGAGE KNOWLEDGE CENTER

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HELOC LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

  1. Home
  2. Mortgage Knowledge Center
  3. Top 10 Benefits of a HELOC or Home Equity Loan

MORTGAGE

Top 10 Benefits of a HELOC or Home Equity Loan

What you'll learn: How HELOCs and home equity loans offer low rates, flexibility, savings, and more

EXPECTED READ TIME: 5 MINUTES

June 30, 2023

Top 10 Benefits of a HELOC or Home Equity Loan

What are the advantages of a home equity loan? How about the benefits of a HELOC? When it comes to tapping into the equity of your home, these two loan types are often top contenders and offer many overlapping advantages. Let’s explore the top benefits of home equity loans and HELOCs.

You may also like: The Differences Between a Home Equity Loan and HELOC

1. Low interest rates

Home equity loans and home equity lines of credit (HELOCs) are mortgage loans above and beyond your original home loan. Your home is secured as collateral for a home equity loan or line of credit (HELOC). Sounds like a big commitment, but it comes with a major benefit: lower rates. Compared with funding home improvements and other expenses with a personal loan or credit card, you’re likely to receive a much more attractive interest rate with a HELOC or home equity loan.

Home equity loan rates are typically fixed, while HELOCs often start with a low introductory rate and then become variable (meaning the rate fluctuates with the market). But caps are in place to limit the possibility of increases. Even with the uncertainty, a HELOC’s interest rate is often lower than other loan types.

2. No restrictions

Need to replace a roof, pay for college, or put down money on an investment property? Unlike many other loan types, there are no rules about what HELOC and home equity loan funds can be used for. It’s recommended to use your equity to add value to your home or improve your finances, but there are no limitations in place for how to use the cash. 

3. Low or no closing costs

Closing costs cover the various fees and services provided throughout a loan approval process, such as credit checks, appraisals and inspections, and mortgage points. Most mortgages have closing costs between 2% to 5% of the property purchase price. While a home equity loan can fall within that range, it’s more likely to be at the lower end because the process is simpler. 

And there’s even better news for a HELOC: Depending on your lender and financial situation, there may not be any closing costs at all. This is especially true if you have a strong credit history. 

4. Flexibility with funds

Do you want your cash all at once or would you rather draw on it as needed? Home equity loans will provide a lump sum at loan closing, which you can use all at once or put in a special account – such as an emergency fund – for safekeeping. A HELOC provides additional flexibility to access funds when you want them over the course of several years. An extra benefit of a HELOC is you’ll only pay interest on the money you actually use.

5. Potential tax advantages

Many experts say the best use of home equity is to make improvements to your home that may increase its value. And if you use your equity funds to renovate your home, you may be able to deduct the loan’s interest at tax time. It’s recommended to speak to a tax advisor to ensure the interest is tax deductible. 

6. Repayment options

Another advantage of a home equity loan is how the funds are paid back. A home equity loan can be appealing if you enjoy the predictability of a fixed monthly payment spread over a long term, such as 30 years. Depending on your lender, you may be able to pay extra or pay it off early.

With a HELOC, you may be able to adjust your payment schedules as necessary. It may even be possible to reduce your payment to interest-only for a period of time and then pay off the balance when you are more financially secure. Check with your lender to see what repayment options are available.

7. No credit card debt

If you’re trying to minimize high-interest credit card debt, a HELOC or home equity loan may be the answer. Additionally, you can use an equity loan to pay off your existing credit cards and create a streamlined, consolidated financial plan that offers relief now and gets you on a successful path for the future.

8. Keep your primary mortgage

If you’re considering a HELOC or home equity loan and feel wary of the “second mortgage” label, consider this: the cash-out refinance. This refi option allows you to access cash, like a HELOC or home equity loan, but it replaces your current mortgage with a new loan.

However, the likely trade-off here is a higher balance than you would have with a HELOC and your original mortgage. With a cash-out, you have a new interest rate and monthly payment, your term will start over, and there may be higher closing costs. If you prefer to keep your primary mortgage as-is, especially if you have a low fixed rate, a home equity loan or HELOC are most likely better options.

9. Investment opportunities

Looking for ways to add to your monthly cash flow? A home equity loan or line of credit may be an excellent option for adding investment value to your current home. This could be a renovation or addition to maximize rental potential. Alternatively, you could use the funds as a down payment on a vacation home in an up-and-coming tourist destination or a condo in the area your child will attend college.

10. Home improvements

Again: Often the best thing to do with home equity is to add value to your home. You can hire a contractor to renovate a bathroom, install new appliances, and replace windows, or do it yourself over time (and only borrow when you need it with a HELOC). Home improvements allow you to use the equity in your home to build more equity – a win-win.

Is a HELOC a good idea?

And there you have it: the many advantages of home equity loans and HELOCs. If you want to access equity without touching your current mortgage, either option could be a good idea. You may want to review their differences and top FAQs to help decide which is best for you.

For more information about PenFed Mortgages:
 

PenFed Mortgage: 

800-970-7766

Get Started

SIMILAR ARTICLES

What Is a HELOC? | PenFed Credit Union

Wondering what exactly a home equity line of credit is? Here's a closer look at what homeowners should know about taking out a HELOC.

Couple calculating a budget together.

How Much HELOC Can I Get? | PenFed Credit Union

Learn about Home Equity Line Of Credit (HELOC) min and max loan amounts, how to increase a HELOC, cost planning, and how to receive a HELOC today.

Couple looking over documents

HELOCs & Home Equity Loans – Top FAQs | PenFed Credit Union

Using the equity in your home and getting a HELOC, or home equity loan is a big decision. Discover the pros and cons and get your top questions answered.

files and binder on a desk

HELOC vs. Cash Out Refinance | PenFed Credit Union

Home Equity Line of Credit (HELOC), lets you withdraw funds as needed. Cash-out refi gives you funds all at once. Find out which is better for your situation.

Houses in neighborhood
image

HELOC LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Home Buying Steps

  • Getting Started
  • Finding a Home
  • Getting a Mortgage
  • Home Ownership

Mortgage Topics

  • VA Loans
  • Conventional Loans
  • First Time Homebuyer
  • Home Equity
  • Homebuying 101
  • Checklists
  • Adjustable Rate Mortgages
  • PenFed Top 10
  • Refinance
  • Jumbo Loans
  • FHA
  • Videos

Mortgage Products

  • Mortgage Center
  • Refinancing
  • Home Equity

PenFed HELOC

Rates as Low as % APR* with flexible use of funds

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Disclosures

1Prime Rate is % as of . The APR for this Home Equity Line of Credit (HELOC) is based on prime plus a margin and can change monthly. Fixed Rate Advances will be amortized over the Fixed Rate Advance Term, with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin, and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes.

  • Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary.
  • Home equity lines of credit (HELOC) are variable rate loans and the interest rate is subject to increase after consummation of the loan on monthly basis. Closing costs range between $500 and $8,500 for credit lines of $500,000. Contact a representative for additional details.

Appraisals: PenFed will attempt to establish value via an independent method. If that method is unsuccessful, or the value is not sufficient for the amount requested, an appraisal will be required regardless of CLTV. An appraisal is always required in the following circumstances:

For all loans with a loan amount greater than $400,000.

If an appraisal is required, it must be ordered by PenFed. You will be contacted for authorization and payment prior to ordering. Appraisal fees average $550 to $850 (some run higher).

  • Closing Cost Credit: PenFed will pay most closing costs associated with a home equity line of credit (HELOC), which includes credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, property search, and quick close. Member is responsible for any city, county, and/or state taxes if the subject property is located in FL, LA, MD, MN, NY, TN, or VA. If an appraisal is required, the member, who is responsible for the fee whether or not the loan closes, will pay the cost.

Interest may be tax deductible, consult a tax advisor for further information regarding the tax deductibility of interest and charges.

Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.

Fixed Rate Advances will be amortized over the Fixed Rate Advance Term with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes and 4.75% for investment properties.

Property Insurance: Property insurance is required.

Multiple PenFed Loans: Multiple PenFed Equity loans and HELOCs are available as long as the member and collateral qualify (except Texas). For Equity loans and HELOCs the total indebtedness cannot exceed $500,000 for all PenFed Equity and HELOCs combined.

PenFed does not lend on:

  • Mobile homes
  • Co-ops or time-shares
  • Properties that are currently listed on the market for sale
  • Commercial property or property used for commercial purposes, even if a residence is part of the property
  • Undeveloped property (land only)
  • Properties with more than 4 units

Properties that are currently under major construction/renovations: Property must be fully livable, with no safety issues. (Examples: no missing rails from stairs/decks, no open walls with wires showing, missing kitchen appliances/counters, missing bath fixtures or unfinished pool).

  • Additional limitations may apply

Home Equity Line of Credit:

  • This Account has a Draw Period of 10 years, followed by a repayment period of 20 years.
  • If only minimum payments are made during the draw period, the loan balance will not decrease.
  • In Texas, the maximum CLTV available is 80% on owner occupied properties. Additional restrictions apply in Texas, so please ask a representative for details.
  • In all other states, the maximum CLTV is 85% on owner occupied properties and second homes. Additional restrictions or requirements may apply based on application characteristics.
  • Property type of Condo has a maximum CLTV of 80%.
  • The maximum CLTV available is dependent on credit qualification.
  • Rates vary depending on owner occupancy and CLTV and other loan criteria.

Minimum Loan Amount Requirements in all States:

  • For an owner occupied property or second home the minimum loan amount is $25,000 and the maximum amount is $500,000 with a CLTV of 85% or less of the fair market value.

Other terms and conditions apply; call 844-918-4307 to speak with a representative for details. All rates and offers are subject to change without notice. To receive advertised product, you must become a member of PenFed.

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This credit union is federally insured by the National Credit Union Administration. Rates are current as of September 2023 unless otherwise noted and are subject to change.

APY = Annual Percentage Yield
APR = Annual Percentage Rate


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IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party Website that is not a part of Pentagon Federal Credit Union.


The content you are about to view is produced by a third party unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Realty, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Realty, LLC, see the Affiliate Business Arrangement Disclosure.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party Website.


The content you are about to view is produced by a third party website that is unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Title, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Title, LLC, see the Affiliate Business Arrangement Disclosure.


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