Credit unions prioritize their members’ financial well-being — understand the risks of a HELOC before you apply

Stanford Federal Credit Union is a notfor-profit, memberowned financial institution dedicated to improving the financial lives of its members. As with most credit unions, Stanford FCU puts the needs of its members before profits, and prioritizes financial education as a means to help members achieve their financial goals. Like all home loans, a home equity line of credit (HELOC) uses your home as collateral. This may put your home at risk if you can’t make your payment.

A HELOCis a revolving line of credit, much like a credit card. You can borrow as much as you need, whenever you need it, by writing a check or using a credit card connected to the account. Because a HELOC is a line of credit, you make payments only on the amount you borrow. HELOCs may also give you tax advantages. Talk to a tax adviser for details.

Most HELOCs have a draw period — a period of time when you can withdraw money. Once the draw period expires, you won’t be able to borrow additional funds. In some plans, you may have to pay the balance in full. In others, you may be able to repay the balance over a period of time.

Unlike other home loans, the APR for a HELOCis based on interest alone, anddoes not include points and financing charges. Most HELOCs have variable interest rates, which mean the payments can increase or decrease. Be sure to check and compare the terms. There will likely be limits on how often your rate can change, and how much it can increase or decrease. There is also a lifetime cap — the maximum amount that the rate can increase.

Sometimes lenders offer a temporarily discounted interest rate that’s unusually low and lasts only for an introductory period like six months. During this time your payments are also lower. After the introductory period ends, your rate and paymentswill increase.

HELOCs have many of the same fees as your original mortgage. These fees can add substantially to the cost of your loan, especially if you don’t really use your credit line. Ask upfront about the fees, or look for a “no cost” HELOC.

In addition to upfront closing costs, some lenders have an annual fee and may charge a transaction feeeach time you borrow money.

Compare lenders and read the loan documents carefully. If the HELOC isn’t what you expected or wanted, don’t sign the loan.

Visit the Federal Trade Commission’s Consumer Information website for more information about Home Equity Loans and Lines of Credit.

Stanford Federal Credit Union is a full-service financial institution serving the Peninsula. Visit Stanford FCU’sHome Equity Loansweb page to learn more about our special limited-time no-cost HELOC up to $250,000 with a Prime minus 1% rate for the first 12 months, and Prime + 0% for the remainder of the loan.