Demystifying Home Equity Lines of Credit

While there are plenty of resources that explain what a home equity line of credit (or HELOC) is and what you can use it for, you’re not alone if you still have questions.

Learning about a UW Credit Union's HELOC options online.

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Understanding anxiety

First of all, it’s important to note that oftentimes, financial decisions are also emotional ones – particularly when we feel that the stakes are high.

When it comes to HELOCs, terms like home equity and second mortgage can sound both mysterious and intimidating – which can cause us to question our confidence when it comes to making the best financial decision. We may fall into old habits or rely on more familiar forms of credit rather than wading into unfamiliar territory. While this can seem easier, it’s not always in your best interest.

HELOCs don’t need to be scary! Let’s break down the jargon and arm you with the information that’ll help you make the best decision for your unique situation.

Do I need a HELOC?

Tapping into your home’s equity can be a great way to fund large purchases, including home renovation projects, weddings, education expenses and medical bills. If you know you’ll have such an expense in the future, a HELOC can help you access the money to pay for it – usually at a much lower rate than a credit card¹.

HELOCs can also be a useful means of debt consolidation, allowing borrowers to pay off higher interest loans by leveraging home equity that might otherwise sit dormant.

Home equity loans or personal loans are also options worth considering. These loans can give you quick access to cash, but they’ll require you to begin paying back principal and interest for the total amount right away. HELOCs differ in that most require you pay interest only on the amount you actually use, and you can reuse money as you pay it back. (Not all HELOCs behave this way, speak to a UW Credit Union lending expert for details). In this way, HELOCs are similar to credit cards: you have a limit and can spend against that amount as you see fit; paying back the loan will free up that money for you to spend again.

Keep in mind that a HELOC won’t always be the best lending option. Using your home equity to fund the purchase of a fancy sports car might not be the best idea!

Is there a downside to tapping into my home equity?

The prospect of putting up your home equity as collateral on a loan can certainly give you pause. When seeking a HELOC, that is essentially what you’re doing.

Both qualification to ensure affordability and enhanced home valuations standards have come together for better homeownership financing. It’s less likely that a would-be borrower would be approved for a loan that they couldn’t afford in the first place. Similarly, as home valuations have added rigor in the process, it’s less likely that a home would be assessed far beyond its actual worth in a way that could be financially burdensome to a consumer.

Still, if you’re uncertain about the process, a UW Credit Union lending specialist can talk you through it. And even once you’ve been approved for a loan, you’ll have a three-day right of rescission period to change your mind.

How exactly do I use my HELOC?

You’ll have access to the funds on the fourth business day after you've been approved for a HELOC. The line of credit will show up right in your UW Credit Union Web Branch, and you can begin making transfers to various accounts right away.

One tip for using your HELOC: pay for large purchases with a credit card that offers rewards, then use the money from your HELOC to pay off the balance. You’ll be rewarded for the purchase and avoid high interest rates.

During the draw period, HELOCs only require you to pay interest on the amount of money that you use. However, it’s important to note that only paying that interest won’t reduce your principal, so when the HELOC reaches its repayment phase, you’ll be stuck with higher payments. It’s a good idea to pay more than the minimum to reduce the principal, which ultimately reduces the time required to pay back the loan.

How can I apply?

If you’re ready to pursue a HELOC, UW Credit Union makes applying easy. All you’ll need is some information about yourself, any joint applicants, your existing mortgage and your home value.

UW Credit Union lending specialists have resources to help determine your home’s value. Once you apply, a lending specialist will reach out to answer any questions and provide additional information.

UW Credit Union’s friendly and knowledgeable lending specialists can walk you through every step of the process and make sure you feel 100 percent confident in pursuing a HELOC. We’re here for you, and we’ll always act with your best interest at heart.

Ready to apply? Begin your quick and easy home equity line of credit application.

¹Average credit card APR is 22.59%, as reported by WalletHub, Credit Card Landscape Report Q1 2025.