A home equity line of credit (HELOC) is one of the most flexible tools available to homeowners, yet it’s also one of the most misunderstood. Misconceptions about how HELOCs work often keep people from using their home equity strategically or from exploring the option altogether.
Whether you are looking to remodel your kitchen or consolidate your debt, a HELOC might be a great tool to assist. However, before taking the leap, let’s look at a few common misconceptions about HELOCs so you can better understand what you’re signing up for.
Myth: A HELOC affects your current mortgage interest rate.
Truth: A HELOC is separate and independent from your current mortgage.
Many homeowners worry that opening a HELOC will somehow change the interest rate on their existing mortgage, especially if they locked in a low rate during a favorable market. However, this is far from the truth. Opening a HELOC will not change, alter, or increase the interest rate on your existing mortgage. Instead, it acts as a second lien with its own terms and interest rates.
Myth: HELOCs can only be used for home improvement projects.
Truth: HELOCs can be used for many different financial purposes.
Since you’re taking out a loan against your home, it is common to think that you can only use that loan to make improvements to your home. The truth is there are many uses for a HELOC outside of home improvement projects, including:
Myth:A HELOC is the same as a home equity loan.
Truth: A HELOC and a home equity loan are very different.
HELOCs work as a revolving line of credit where you borrow only what you need. It basically functions like a credit card secured by your home. On the other hand, a home equity loan is a lump-sum disbursement with fixed monthly payments and a fixed interest rate.
Myth:A HELOC will hurt your credit score.
Truth: A HELOC will not automatically hurt your credit score. In fact, it can help improve it if used wisely.
A HELOC can actually help your credit score because it increases your overall credit, which is good for credit utilization. Plus, on-time payments help to build positive credit history.
While opening a HELOC does not automatically hurt your credit score, applying to multiple lenders at once during the application process, missing payments, or your debt utilization spiking dramatically, could. Also, pro-longed non-payment can also lead to foreclosure.
Myth: A HELOC must be used immediately.
Truth: You can access your HELOC at your own pace.
When you get approved for a HELOC, many people believe they must draw from the funds right away. However, this couldn’t be further from the truth. A HELOC is designed to be a flexible tool where you can open it and use it when you need it. With an interest-only HELOC, Alliant gives you 10 years to draw from your line of credit, during which you’ll only pay on the amount you borrow
Whether you want to renovate, consolidate debt, or simply boost your financial safety net, a HELOC can be a versatile and powerful tool when used intentionally. Applying for a HELOC at Alliant is simple, starting with an online application. If you are approved, you can access your funds digitally through online banking or our mobile app. Alliant allows you to borrow up to 85% of the value of your home2 and gives you 10 years to draw from your line of credit, during which you will only have to pay on the amount you borrow.3
1. Debt consolidation combines multiple debts into a new loan with a single monthly payment. However, it may not reduce your payment or allow you to pay your debt off sooner. Reductions in your monthly payment could come from a lower interest rate, a longer repayment period or a combination of both. By opting to repay the debt over a longer period, you may pay more in interest overtime. Prior to applying, we recommend you review your existing debt and this offer to determine the best borrowing options for you.
2. Alliant estimates the value of your home using Automated Value Models (AVMs) which are based on local real estate data. In rare cases where Alliant is not able to establish a value for your property through an AVM, an appraisal can be ordered at the applicant's expense to determine the estimated property value for lending purposes.
Interest-only Home Equity Line of Credit
3. Home equity products are available in the following states: AZ, CA, CO, CT, FL, GA, HI, IL, IN, KY, MA, MI, MN, MO, NC, NJ, NV, NY, OH, PA, TN, UT, VA, WA, WI and Washington, D.C. The minimum loan amount is $10,000. The minimum loan amount is $25,001 in WI and Washington, D.C. Offer subject to credit approval, which includes verification of application information and receipt of collateral documents. Rates and closing costs are subject to credit qualifications. Maximum loan to value of up to 85% depending on state in which the property is located and credit worthiness. The following states are limited to a maximum of 80% CLTV: AZ, CA, CO, FL, GA, IN, MI, MO, NC, NV, TN, UT. Initial rate is based on loan amount, loan to value and credit history. We may not extend credit to you if you do not meet Alliant criteria. The Annual Percentage Rate (APR) is a variable rate. Your qualifying rate may adjust monthly and is based on the highest Prime Rate as published in The Wall Street Journal as of the date of any rate adjustment plus or minus a margin. The APR range is from 6.75% to 16.00%. Loans without automatic payment selection from an Alliant Credit Union account are subject to an increase in rate and margin of 0.25%. No closing costs (excluding applicant ordered appraisals and notary fees) based on Interest-only Home Equity Line of Credit (HELOC) loans up to $250,000 and meeting Alliant criteria. A fee of up to $1,000 is applied to Interest-only HELOC loans more than $250,000. Minimum payment will not repay principal, which will result in a higher principal and interest payment at the end of the 10 year draw period. Costs to satisfy certain prior liens may be assessed. The Annual Fee of $50 will be waived the first year but will be assessed in subsequent years. You will incur the annual fee even if you don't have a balance. Property insurance is required. Flood insurance may be required. We will require a full appraisal, at applicant's expense, in the event your property is in a FEMA-deemed natural disaster area. If the state and/or county in which the collateral is located charges additional fees and taxes, the borrower will be responsible for payment. A $200 termination fee may be applied to an Interest-only HELOC cancelled or closed by the borrower within 36 months of origination. Refinancing of Alliant home equity products available; $250 fee on loans that do not increase the credit limit by $10,000 or more. Rates, terms, and conditions subject to change. Other restrictions may apply. Interest-only HELOC loans available on 1 to 2 unit owner occupied dwellings. Please consult with an Alliant Loan Consultant at 800-328-1935 ext. 2570 for more information on an Alliant Interest-only Home Equity Line of Credit.
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