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MORTGAGE KNOWLEDGE CENTER

PenFed Mortgage with Confidence

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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

  1. Home
  2. Mortgage Knowledge Center
  3. Top 10 Ways to Use Your Home Equity

MORTGAGE

Top 10 Ways to Use Your Home Equity

What you'll learn: Learn about the most popular uses of a HELOC

EXPECTED READ TIME: 6 MINUTES

May 7, 2023

As home prices continue to soar, many homeowners are at an advantage when it comes to tapping into their home’s value. However, just because you might have an abundance of equity, it doesn’t mean you know how to use it to your advantage. You can tap into your equity through a home equity line of credit (HELOC). Here are some of the best ways to use your home equity in ways that make sense financially, especially while your home is currently worth more.

What is home equity?

Home equity is simply the difference between how much your home is worth and how much you owe on your mortgage. Each month, as you make timely mortgage payments, the principal balance on your mortgage reduces and home equity is built. If your current mortgage balance is lower than your home’s value, you may be able to convert part of the positive balance into cash. If used wisely, you can use the value of your home to pay for other expenses by opting for a HELOC.

A HELOC is a revolving line of credit that works like a credit card. You only pay back what you spend, plus interest, and you can reuse it as long as the draw term has not expired. This is a great option if you have ongoing projects or if an unforeseen event arises.

10 best ways to use your home equity

There are many ways to use your home equity, however some options may end up hurting your long-term financial health. Here are some smart options for utilizing your home equity.

1. Tackle a home improvement project.

Your next home improvement project can be funded by your real estate equity. However, not all expenses will qualify for tax refunds or add value to your home. To maximize the funds from you home equity, consider these common home improvements that may qualify for tax deductions. Consult a tax adviser for further information regarding the deductibility of interest and charges.

  • Replacing an HVAC system
  • Energy-efficient improvements
  • Resurfacing your driveway
  • A new roof
  • Decks and porches
  • Home improvements for medical purposes
  • Installing insulation
  • New windows
  • Plumbing and electrical
  • Swimming pool
  • Additions
  • Adding a bathroom

2. Reduce your interest rate with a refinance.

Say goodbye to pesky private mortgage insurance (PMI) payments and high interest rates when you opt for a refinance. A refinance is a new loan which may offer better interest rates and a potentially lower monthly payment than you had on your original loan depending on market conditions.

3. Use the extra money to consolidate debts.

Using your home equity to consolidate outstanding debts is beneficial because a home equity loan or line of credit typically has a lower interest rate than other types of loans. If you are saddled with thousands of dollars’ worth of credit card debt, this may be a smart financial move.

4. Cover outstanding medical expenses.

If you are struggling to pay your outstanding medical bills or those of a family member, using your home equity could provide some relief.

5. Pay off student loan debt or your child’s college tuition.

Whether you have your own student loan debt to pay off or need to help support your children with furthering their education, using the equity in your home is an option.

6. Make retirement adjustments.

If retirement is just around the corner, there are many ways you can use your home equity to improve your quality of life. You can use the funds to downsize your home, generate additional retirement income, balance stock market investments, or even make accessibility renovations if your physical needs change.

7. Add an addition to your home.

If your space is getting cramped, but a move just isn’t in the cards, using the equity in your home to increase square footage is ideal. Instead of opting for an expensive move, adding a game room, bathroom, or bedroom can save you money in the long-run.

8. Make a down payment on an investment property.

Are you ready to start your real estate investing career? Depending on the health of your credit score you will need to put down a minimum down payment which you could pay with the home equity of your primary home as collateral. The rental home should eventually cover the costs of your current mortgage payments and so on as you invest in more real estate to bolster your wealth.

9. Start a new business.

Whether you are building your own start-up, freelancing, or opening a franchise, you can tap into your home equity to help you access funds to pay for potentially expensive start-up costs, instead of using your personal savings.

10. Start an emergency fund.

Sometimes life happens, and when unforeseen events occur, it can be smart to use your home equity in some emergency situations such as losing your job, medical bills, or short-or long-term disability.

For more information about PenFed Mortgages:
 

PenFed Mortgage: 

800-970-7766

Get Started

SIMILAR ARTICLES

How Much Equity Do I Need for a HELOC?

Find out HELOC requirements, how long it takes to get a HELOC, and how much equity you need for a HELOC here.

HELOC for home improvements

Personal Loan vs. HELOC: Which Is Right For You?

When comparing a personal loan vs. a HELOC, the choice depends on your situation. We’ll explain the pros and cons of personal loans and HELOCs and which is right for you.

personal loans or HELOC

HELOCs & Home Equity Loans – Top FAQs

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.

Large American beautiful house with red door.

What Is a Home Equity Loan?

Find out what a home equity loan is, including the pros and cons. We’ll talk about tax-deductibility and how to calculate equity. Then you can decide if one is right for you.

Couple discussing home improvements.
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 October 2023 unless otherwise noted and are subject to change.

APY = Annual Percentage Yield
APR = Annual Percentage Rate


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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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