Home Equity Line of Credit

Answers To Your Home Equity Financing Questions

Many members have asked us about Home Equity lines of credit (HELOC) and how they might benefit from using a line of credit based on their home's equity. Here are answers to your basic questions about Home Equity financing and how St. Cloud Federal Credit Union's "EQUITY ONE with Draft" service can benefit you and your family.

---

Q1. What is a Home Equity Line of Credit, and how can I qualify for one?

A1. A Home Equity Line of Credit - like St. Cloud Federal's EQUITY ONE with Draft - is a form of revolving credit in which the equity in your home serves as collateral. A Home Equity line such as Equity One allows you to draw out money when you need it, without the need to visit the Credit Union. Use one of these convenient methods:

• Transfer using Online Banking: Use our free Online Banking service to quickly transfer funds any time from your Equity One account to your checking account. Online Banking is available free to all Credit Union members.
• Transfer using VOICE RESPONSE Line: Use any touch-tone phone to quickly transfer Equity One funds to your Checking Account. Voice Response is a free service for all Credit Union members.
• Write a draft (a special check) any time for the amount you need, up to your predetermined limit. Drafts are provided free by the Credit Union.
  

We want you to be aware of what's involved in Home Equity financing, so we encourage you to talk to us about your specific needs. We will guide you through the application process for your Equity One account. Much of the process can be completed over the phone; we would order a home appraisal OR ask that you bring your property tax statement. Final loan approval may be subject to other necessary verifications.

A Home Equity line of credit is a form of mortgage financing, so it requires closing costs, including such items as a title examination and appraisal. All or much of this amount may be recoverable through tax deductions for interest expense. See question 4 for more about deductions. All such out-of-pocket expenses in setting up a home equity loan will be paid by the member. Such costs may include appraisals, title report, recording fees, and the mortgage registration tax. Adequate property insurance must be maintained.

• The Credit Union's Home Equity annual percentage rate is guaranteed not to increase more than 2% annually -- compare that to bank programs that have double-digit rate limits. Our rate is based on the 6-month Treasury Bill. The dollar amount you pay for money borrowed is called a "finance charge" and begins on the date of each advance. No prepayment penalties apply.
• No annual fee! Again, compare that to the fees that area banks charge.

---

Q2. How do I qualify for this type of financing?

A2. When considering your qualifications for a Home Equity Line of Credit, Credit Unions and other financial institutions use the term "lendable equity". Your lendable equity will vary, depending on how long you've lived in your home, and on other factors such as the amount of your mortgage down-payment, and whether you have made any home improvements which have added to the value of your home.

Generally, lendable equity is between 70% and 90% of your home's current market value, after subtracting your mortgage debt.

---

Q3. How do people use their Home Equity funds?

A3. Generally, people use a Home Equity line because it's a convenient way to pay for major items such as education, home improvements and repairs,medical bills, emergency expenses, automobiles, even weddings. These expenses typically require more money than day-to-day expenses.

Some people may use it to consolidate all their bills into one monthly payment; usually, their monthly payment ends up less than the combined payments of all their bills.

---

Q4. Some people talk about getting a tax deduction on their Home Equity line of credit. Is that available to anyone?

A4. Depending on a person's tax situation, the interest paid on Home Equity financing may be deductible. Always consult with a tax expert to determine what is eligible for deductions.

---

Q5. Are there other benefits to using Home Equity financing?

A5. Yes.

• The interest rate is generally lower than other consumer financing options.
• The amount of money you can borrow is normally larger than other types of personal loans.
• Members also have the option of making interest-only payments on their account. Keep in mind that interest is charged only on the actual funds used, not on any portion of the unused funds.

---

Q6. Since the Equity One account uses my home's equity as collateral, what happens if I sell my home? Will I have to pay off the balance right away?

A6. Yes, you would need to pay off your Equity One balance at the time you would close the sale of your home. A satisfaction of your mortgage would be sent to you, to be used at the closing of the sale.

---

Home Equity Glossary

Here is a list of terms used in lending, which may come up in conversations about Home Equity financing, as well as other types of consumer loans.

Annual membership or participation fee:
(Note: St. Cloud Federal members are not charged any annual fees, application fees, participation fees, nor transaction fees.) An amount that is charged annually for having the line of credit available. It is charged regardless of whether or not you use the line. Compare our plan to other lenders.

Annual percentage rate (APR): The cost of credit on a yearly basis, expressed as a percentage.

Application fee: (Note: St. Cloud Federal does not charge an application fee.) A fee that is paid upon application for a loan.

Balloon payment: A lump-sum payment that you may be required to make under a finance plan (loan) when the plan ends.

Cap: A limit on how much a variable-interest rate can increase during the life of the plan.

Closing costs: Fees paid at closing, including attorneys' fees, fees for preparing and filing a mortgage, for taxes, title search, and insurance.

Credit limit: The maximum amount that you can borrow under the Home Equity plan.

Equity: The difference between the fair market value (appraised value) of your home and your outstanding mortgage balance.

Index: The base for rate changes that the lender uses to decide how much the annual percentage rate will change over time. St. Cloud Federal uses the monthly average of the 6-month Treasury Bill rate.

Interest rate: The periodic charge, expressed as a percentage, for use of credit.

Margin: The number of percentage points the lender adds to the index rate to determine the annual percentage rate to be charged. The margin used by St. Cloud Federal is 4.5 percent over the index rate. Frequently, our actual APR is lower than the calculated rate.

Minimum payment: The minimum amount that you must pay (usually monthly) on your account. The minimum allowable payment may be "interest only", as with the EQUITY ONE with Draft account. In other plans, the minimum payment may include principal and interest.

Points: A point is equal to one percent of the amount of a credit line. Points usually are collected at closing, and are in addition to monthly interest. St. Cloud Federal does not charge for points on Home Equity financing.
Security interest (collateral): An interest that a lender takes in the borrower's property to assure repayment of a debt.

Transaction fee: St. Cloud Federal Credit Union does not charge any transaction fees.

Variable rate: An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

Call or visit our Loan Department to learn more about the benefits of Home Equity financing.
(320)258-2190 or toll-free 1-888-252-2634

Email our Loan Department at Lndept@stcloudfcu.coop

Use our handy calculators to explore your loan options.