What is a PenFed HELOC?

Two senior women who like the PenFed HELOC rates.

Tap into your home equity

home equity cta - What is a PenFed HELOC?

If you find yourself needing to come up with a large sum of money quickly, then a home equity line of credit from Pentagon Federal Credit Union can provide the funds you need. These versatile loans are distinct from home equity loans and can be used for any purpose and even have some tax advantages in some cases. Read on to find out how a PenFed home equity line of credit works and how it can benefit you.


How PenFed HELOCs Work

home equity line of credit is a line of credit that is secured by the equity in the borrower’s home. PenFed Credit Union’s HELOCs closely resemble all other HELOCs that are issued by banks, credit unions and other financial institutions in most respects.

Their loan-to-value ratios go as high as 90% for owner-occupied residences, and go up to 80% for non-owner occupied homes. The amount of the line of credit that they will extend to the borrower equals the amount of the LTV (the top percentage of the borrower’s home value) minus any loans that are currently outstanding on the property, such as a primary mortgage or other lien.

PenFed will also pay all of the closing costs for the HELOC except for the notary fees and the appraisal if one is necessary. Closing costs can range from $500 to $8,500 for the largest loans. However, if the borrower closes or pays off the HELOC within 2 years of the closing date, then the borrower must repay PenFed for all of the closing costs incurred by the loan.

Borrowers are also responsible for any state or local taxes incurred in certain states such as Florida and Kansas.

The lifespan of a home equity line of credit can be divided into two periods. The draw period is the first period; this is the time during which the borrower can draw on the line of credit to pay for expenses. This period usually lasts anywhere from 5 to 10 years.

The second period is the repayment period. This period is when the borrower must begin repaying the principal that was drawn out during the draw period. This period can last for as long as 20 years.

There are generally at least four ways that most HELOC customers have available to draw on their lines of credit. Virtually all HELOCs issue the borrower a book of checks that they can write against the equity in their homes. Most HELOCs also allow borrowers to obtain funds either by phone or in person at a branch location of the lender.

Most HELOCs also provide the borrower with a debit or credit card that they can use to make purchases that draw directly from the line of credit. Some lenders also provide access both online and via a mobile phone app. PenFed customers can access their loan amounts at www.penfed.org.

Grandparents wondering a PenFed HELOC with grandchildren outside.


Qualification & Requirements for a PenFed HELOC

HELOC borrowers must generally undergo the same underwriting process as they would with any other type of home loan. They will have to provide most of the same information, including:

  • Personal and contact information
  • At least 30 days of pay stubs
  • 2 years of W2 forms
  • A list of all debts and monthly payments, including their first mortgage
  • 2 years of residence history
  • The amount of their first mortgage and any other liens on the property
  • A complete list of all financial assets, such as bank accounts, investment accounts and retirement savings accounts
  • A complete breakdown of all of the real estate owned by the applicant, including mortgage balances and income generated

Self-employed borrowers must usually also provide their last 2 federal tax returns and any K-1 forms that they have received in the past two years. Retirees must usually provide a Social Security statement as well as a statement of benefits for any pension or other retirement income.

PenFed will also obtain the borrower’s credit score and credit report for the underwriting process.


Typical Interest Rates

Like virtually all HELOCs, the HELOC offered by PenFed has a variable interest rate that is tied to the Prime Rate. The Prime Rate is a major financial index that is published daily in The Wall Street Journal. Following is a breakdown of the interest in PenFed HELOC rates.

Owner Occupied Homes

Rate1

Loan to Value (LTV) – 80% or Less

Line Amount – $10,000 – $400,000

Rate – Variable 5.50% APR (Prime + 0%)


Loan to Value (LTV) – 80.01% to 85% LTV

Line Amount – $10,000 – $400,000

Rate – Variable 6.00% APR (Prime + .50%)


Loan to Value (LTV) – 85.01% to 90% LTV

Line Amount – $10,000 – $250,000

Rate – Variable 6.50% APR (Prime + 1.00%)

1 Prime Rate is 5.50% as of April 1, 2019. There is a minimum rate floor of 3.75% APR and a maximum rate of 18% APR.


Non-Owner Occupied Homes

Rate2

Loan to Value (LTV) – 80% or Less LTV

Line Amount – $10,000 – $400,000

Rate – Variable rate 6.50% APR (Prime + 1.00%)

2 Prime Rate is 5.50% as of April 1, 2019. There is a minimum rate floor of 4.75% APR and a maximum rate of 18% APR.

Tap into your home equity

home equity cta - What is a PenFed HELOC?

Many lenders allow their borrowers to convert some or all of their HELOC balances to fixed-rate options that can protect them from rising interest rates. PenFed has a product known as a 5 and 5 HELOC, where the borrower can lock in the interest rate for 5 years.

Group of seniors taking a break from hiking to consider getting a PenFed home equity line of credit.


Pros & Cons

HELOCs can provide borrowers with many benefits. Borrowers can draw on their HELOCs to pay for any type of expense, including:

  • Medical or dental bills
  • Monthly expenses during a period of disability
  • College tuition or other education-related expenses
  • Home improvements
  • Debt consolidation
  • As an emergency savings fund

Furthermore, the interest rates that are charged by HELOCs are usually much lower than those charged by credit cards or personal loans. This makes them ideal vehicles for loan consolidation.

If the HELOC is taken out to buy, build or substantially improve the property that secures the loan, then it can be tax-deductible, provided the taxpayer is able to itemize deductions. But the interest charged on any other type of expense is nondeductible.

The biggest disadvantage of a HELOC is that if the borrower becomes unable to make the payments on the loan, then PenFed can foreclose on the property, thus leaving the borrower effectively homeless. For this reason, borrowers should carefully consider whether they will be able to make this additional payment over the long term before signing the closing papers.

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mark cussen - What is a PenFed HELOC?

Mark Cussen is a financial counselor with more than 13 years of experience and has professional designations as a CFP®, CMFC and AFC. Mark has worked in all segments of the financial industry from investment management to mortgage loan origination, life insurance and annuities, financial planning and income tax preparation. He currently works with the U.S. military, helping service members transition financially into civilian life and in other capacities. Mark also sells life insurance and annuities on the side. He graduated from the University of Kansas with a Bachelor’s degree in English.