How does a HELOC Loan* work?

Published February 1, 2021

How to Use a HELOC, Explained

Quite often, CUTX members ask our specialists how a HELOC works. When someone is not familiar with a HELOC, it’s easiest to explain it like a credit card. If you were approved for a credit card and had a $5000 limit but you only charged $2000, then you only pay interest on that $2000. A HELOC works the same way, with the added benefit of a much lower rate. For example, a credit card rate can be as high as around 27%. On average they might be anywhere between 18-21%. With a HELOC, we may be able to get you as low as one quarter or fifth of those numbers, and you can use the funds exactly like you would use a credit card.

Key Takeaways

  • A HELOC works just like a credit card

  • A HELOC has a much better interest rate than a credit card

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*Fixed rate home equity line of credit: Loan has a draw period of 10 years, followed by a repayment period. Interest only payments during the 10-year draw period and will be re-amortized at the time the repayment period begins. If interest only payments are made during the draw period, the loan balance will not decrease.

Variable rate home equity line of credit: Credit Union of Texas offers a variable Annual Percentage Rate (APR) based on the Prime Rate as published in the Money Rates section of The Wall Street Journal (the “Index”) plus a margin based on creditworthiness and credit limit. As of July 27, 2023, the index value is 8.50% . The floor APR will be 3.00%. An increase in the Index will result in an increase in the periodic rate which, in turn, will result in higher payments. In no event, will the APR increase by more than 18% or the maximum rate allowed by applicable law.

The minimum advance during the draw period is $4,000. Property insurance is required, including flood insurance where applicable. Texas homestead properties are limited to 80% combined loan to fair market value for home equity financing. All loans are subject to credit approval and Credit Union of Texas lending policies. Other restrictions may apply. In Texas, there is a 12-day cooling off period on all HELOCs. There is also a three-day right of rescission after closing before the funds may be disbursed. Actual time of funding may differ depending on appraisal, title and other underwriting requirements. This is a limited time offer and is subject to change at any time without notice. The account is subject to application, credit qualification, and income verification; additional evaluation and verification criteria may apply. CUTX home loan programs are only available in Texas. Credit Union of Texas NMLS #576560. Membership required.