What is a HELOC? Everything You Need to Know About a Home Equity Line of Credit

If you’re a homeowner, chances are you’ve heard the term “HELOC”. Maybe at a backyard barbecue, on the news, or from your neighbor who just finished their “dream kitchen.” But what exactly is it? How does it work? And more importantly, is it the right tool for your financial needs?

Let’s break it all down and see if a HELOC could open the door to your next big opportunity.

What is It?

A HELOC is a type of revolving credit that lets you borrow against the equity in your home. Think of it as a credit card with a much higher limit, but one that is secured by your house. Instead of receiving a lump sum of money like you would with a traditional home equity loan, you get access to a flexible line of credit you can tap into as needed.

If you’ve been paying down your mortgage and your home’s value has gone up over time, you may have a nice chunk of equity available. It could be used for home improvements, debt consolidation, major expenses, purchases, or even as a safety net in case of emergency.

How Does It Work?

Let’s walk through the basics:

1. Apply – First, you’ll fill out an application, just like you would for any loan. Champions First Credit Union will then consider your home’s appraised value, your mortgage balance, your credit score, and your overall financial health. Through Champions First, you can borrow up to 90% of your home’s value up to $100,000. For loans over $100,000, we reduce the combined loan-to-value to 80%.
2. Get Approved for a Line of Credit – Once funded, your credit limit is set. You can borrow money as needed. A big benefit is that you don’t have to take all the funds at once, and your payment is based only on the amount you draw, not the line amount.
3. The Draw Period – A HELOC has a “draw period” that lasts 10 years. During this time, you can borrow as often as you like by writing checks or making transfers.
4. Payments – The payments on your HELOC will be both principal and interest. The amount is calculated with the balance amortized over 20 years at the calculated interest rate.
5. The Repayment Period – After the draw period ends, the HELOC enters the “repayment period,” which can last 20 years or until the balance is paid in full. At this stage, you can no longer borrow.
6. Variable Rates – HELOCs come with variable interest rates. Your payment amount can go up or down over time, fluctuating with the Wall Street Journal Prime interest rate, plus your pre-determined margin. Sometimes, Champions First will offer special fixed rates. Check here for current promotional details.

Is It Right for You?

Here’s where you get to ask yourself the big questions.

A HELOC could be a good fit if:

• You have at least $10,000 in equity in your primary home. (Not available for secondary, vacation, or investment properties—also not available on mobile or modular homes)
• You need access to funds, but don’t want to take out a big lump-sum loan.
• You want flexibility and the option to use as much or as little as you need, when you need it.
• You’re comfortable with a variable interest rate and have a plan to repay what you borrow.
• You want lower interest rates compared to most credit cards and personal loans.

It might not be right for you if:

• You are not disciplined with borrowing. Remember, your home is collateral, and defaulting could put it at risk.
• You are planning to sell your home soon. A HELOC would need to be paid off at closing. This could eat into your proceeds or delay the timeline.
• You’re looking for a one-time, fixed loan for a specific project. In that case, a personal loan might make more sense.

In short, this is a powerful tool that needs to be used wisely. If you use it with intention and a solid repayment plan, it can help you reach your goals without emptying your savings or maxing out your credit cards.

What Can the Funds Be Used For?

Funds from a home equity line are versatile. Here are some of the most common uses:

• Home Improvements: Kitchen remodels, bathroom upgrades, new roofs, or landscaping. You can reinvest it to increase your home’s value.
• Debt Consolidation: Roll your high-interest credit card debt into a line with a lower rate. Just make sure you don’t rack up those cards again.
• Education Expenses: Tuition, books, and supplies for you or your kids.
• Major Purchases or Life Events: Dream vacation, wedding, new boat or RV. Just because you can, doesn’t always mean you should, but the option is there.
• Emergency Fund: Medical expenses, unexpected repairs, or life’s little curveballs.

The bottom line? You’re in control. A HELOC gives you a financial safety net and the flexibility to handle whatever life throws your way.

Ready to See if a Home Equity Line of Credit is Right for You?

If you’re still reading, you probably have a project, a plan, or a “someday” dream that could use a financial boost. The next step is finding the right partner to help you unlock your home’s potential.

Champions First Credit Union is here to help you make smart, confident choices with your equity. Whether you’re just exploring your options or you’re ready to get started today, our team can answer your questions, break down the numbers, and guide you through every step.

Curious what your home’s equity can do for you? Our new online application takes 60 seconds or less to complete, so you can stop wondering and start planning.

Start your application. Your future is waiting, so let’s unlock it together.