What is a US Bank HELOC?
If you need cash to pay for upcoming expenses, then a home equity line of credit from U.S. Bank may provide the solution to your dilemma. These flexible loans allow you to tap into the equity in your home and turn it into cash that you can use to pay for home improvements, medical or education expenses or anything else that you need or want. Here is a breakdown of how these lines of credit work and what they can do for you.
How US Bank HELOCs Work
HELOCs with U.S. Bank work in essentially the same manner as with any other lending institution. First, the borrower has to apply online at the U.S. Bank website to see whether they qualify.
If they do and they get approved for a line of credit, then U.S. Bank will quickly open the line and give the borrower the means to tap into it, either with a book of checks, a debit card, online or via their mobile app. Borrowers can draw from their line of credit at any time, and they will only pay interest on the amounts that they actually draw out.
- For example, if a client takes out a home equity line of credit on their home for $100,000 but only withdraw $20,000 initially, then he or she will only pay interest on the $20,000 that was withdrawn, not the whole $100,000.
Borrowers can take out lines of credit for anywhere from $15,000 to $750,000 (or $1 million in California) as long as their credit scores, home values and cash flows allow for it. Once the closing papers have been signed, the line of credit will become active three business days later, as long as the line of credit is secured by the borrower’s primary residence. (This period of time can vary from one borrower to another, depending upon the circumstances.)
Borrowers also have the option of converting some or all of their outstanding lines of credit into a fixed rate option. Borrowers are allowed to have up to three fixed rate loans of this type at one time.
U.S. Bank HELOCs come with two time periods. The draw period lasts for up to 10 years and is the period of time during which borrowers can draw on their HELOCs. During the draw period, borrowers must make a monthly payment of either 1 or 2 percent of the outstanding balance.
Interest-only payments are also available for those who qualify. Then the repayment period begins, where borrowers must start paying down the accumulated interest and principal until the loan is paid off.
There are no closing costs, application fees or annual fees associated with taking out a HELOC with U.S. Bank. Borrowers can elect to pay an origination fee if they so desire.
Qualification & Requirements for a US Bank HELOC
As mentioned previously, U.S. Bank will carefully review an applicant’s credit score, credit history, cash flow, balance sheet and the amount of equity that the applicant has built up in their home.
The rate that is charged varies according to the credit score of the applicant. The amount of equity that is in the applicant’s home is simply the amount of the home’s value that has been paid for.
For example, take a home that is worth $400,000 in the open market. If there is an outstanding first mortgage balance of $150,000, then that home has $250,000 of equity.
In addition to the documents listed above, U.S. Bank will also need to see a copy of the applicant’s first mortgage statement, personal property tax bill and a copy of the applicant’s homeowner’s insurance policy. Other documents may be required as the applicant moves on through the loan application process.
Typical Interest Rates
As with most home equity lines of credit, U.S.Bank’s HELOCs are variable rate loans. U.S. Bank charges an introductory rate of 3.99% APY for the first 6 payments, then 5.74% on all payments thereafter. This rate will rise and fall in tandem with the Prime Rate that is published in The Wall Street Journal.
There is also a special incentive for borrowers who elect to make automatic payments from a U.S. Bank checking account or savings account. Their interest rates will be reduced by 0.50%.
Pros & Cons
Taking out a home equity line of credit through U.S. Bank can provide the borrower with several advantages. First, the rate of interest that is charged on a HELOC is probably lower than the rates of interest that borrowers may be paying on their credit card balances, car loans or personal loans.
Furthermore, if the line of credit is used to build, buy or improve the borrower’s primary residence, then the interest charged on the loan amount of a HELOC is tax-deductible as an itemized deduction.
But HELOCs can be used for anything from building an emergency savings fund to paying for medical or educational expenses or even buying a car. But under the new tax laws, interest is only deductible under the conditions described above. There is no deductibility if the HELOC is used for any other purpose.
HELOCs can also provide borrowers with a ready source of cash to draw from when unexpected expenses arise, such as storm damage, flooding, car burglaries or other losses that may not be covered by insurance (or can only be reimbursed by insurance after the borrower pays for the expenses up front).
Another drawback that comes with HELOCs from U.S. Bank (and from the vast majority of other lenders as well) is that they charge a variable interest rate. This means that the minimum monthly payments can rise if interest rates rise.
This is why U.S. Bank allows borrowers to convert up to three portions of their outstanding credit line loans to fixed interest rate balances. However, the fixed interest rates that U.S. Bank charges are higher than many other lenders.
Of course, the biggest possible disadvantage that comes with HELOCs (or any other form of home loan) is that the lender (U.S. Bank) can foreclose on the borrower’s property if he or she becomes unable to make the payments.
Borrowers therefore need to think carefully about whether they can make this additional payment in their current budgets. But if the HELOC is used for debt consolidation, then this may be a moot point if the monthly payment will be less than the combined monthly payments of the borrower’s previous debts.