If you’re looking for a large sum of money to use for a home improvement project, or the economic devastation of COVID-19 has left you in desperate need of cash, consider tapping into your home’s equity. One great way to do this is by opening a home equity line of credit, or a HELOC. Let’s take a closer look at HELOCs and why they can be an excellent option for cash-strapped homeowners in today’s financial climate.

What is a HELOC?

A HELOC is a revolving credit line allowing homeowners to borrow money against the equity of their home. The HELOC is like a second mortgage on a home; if the borrower owns the entire home, the HELOC is a primary mortgage.

Given that a HELOC is a line of credit and not a fixed loan, borrowers can withdraw money from the HELOC as needed rather than borrowing one lump sum. This allows for more freedom than a loan and is especially beneficial for borrowers who don’t know exactly how much money they’ll ultimately need to fund their venture.

Borrowers withdraw funds (aka “draws” or “advances”) from the HELOC during a set amount of time that is known as the “draw period,” which generally lasts 10 years. Some lenders place restrictions on HELOCs and require borrowers to withdraw a minimum amount of money each time they make a draw, regardless of need. Other restrictions include the requirements to keep a fixed amount of money outstanding, or to withdraw a specific sum when the HELOC is first established. [At Mutual Credit Union, we allow borrowers to ….]

How do I repay my HELOC?

Repayment of HELOCs varies, but is usually very flexible.

Many lenders collect interest-only payments during the draw period, with principal payments being strictly optional. Others require ongoing monthly payment toward both principal and interest.

When the draw period ends, some lenders will allow borrowers to renew the credit line and continue withdrawing money. Other lenders require borrowers to pay back the entire balance due, also known as a “balloon payment.” Still others allow borrowers to pay back the loan in monthly installments over another set amount of time, known as the “repayment period.” Repayment periods are generous, lasting as long as 20 years.

How can borrowers spend the money? 

While home improvement projects are popular uses for HELOCs, borrowers are free to spend the money however they please. Some other uses for HELOCs include debt consolidation, funding a wedding, adoption, dream vacation or the launch of a new business.

Is everyone eligible for a HELOC?

Like every loan and line of credit, HELOCs have eligibility requirements, which help lenders determine the applicant’s financial wellness and responsibility. Most notably, the borrower must have a minimal amount of equity in the home.

Lender requirements vary, but most homeowners will be eligible for a HELOC with a debt-to-income ratio that is 40% or less, a credit score of 620 or higher and a home assessment that stands at a minimum of 15% more than what is owed.

How much can I borrow with a HELOC?

HELOC amounts vary along with three criteria: the value of your home, the percentage of that value the lender allows you to borrow against and the outstanding amount on an existing mortgage.

To illustrate, if you have a $300,000 home with a mortgage balance of $175,000 and your lender allows you to borrow against 85% of your home’s value, multiply your home’s value by 85%, or 0.85. This will give you $255,000. Subtract the amount you still owe on your mortgage ($175,000), and you’ll have the maximum amount you can borrow using a HELOC, which is $80,000.

What are the disadvantages of a HELOC?
A HELOC is secured by your home’s equity, which places your home at risk of foreclosure if the HELOC is not repaid. Before opening a HELOC, it’s a good idea to run the numbers to get an idea of what your monthly payments will look like and whether you can easily afford to meet them.

Also, many lenders require the full payment of the HELOC after the draw period is over. This can prove to be challenging for many borrowers.

Finally, if you don’t plan to stay in your home for long, a HELOC may not be the right choice for you. When you sell your home, you’ll need to pay off the full balance of the HELOC. You may also need to pay a cancellation fee to the lender.

A HELOC can be a great option now

HELOCs have variable interest rates, which means the interest on the loan can fluctuate over the life of the loan, sometimes dramatically. This variable is based on a publicly available index, such as the U.S. Treasury Bill rate, and will rise or fall along with this index, though lenders will also add a margin of a few percentage points of their own.

The fallout of COVID-19 may impact the economy for months, or years, to come; however, there is a silver lining among the rising unemployment rates and bankrupt businesses: historically low interest rates. The average APR for fixed 30-year mortgages has hovered at the low 3% for months now, and experts predict it will continue falling. The low rates make it an excellent time to take out a HELOC with manageable payback terms.

The economic uncertainty the pandemic has generated also makes it a prime time to have extra cash available for any need that may arise.

Are you looking to tap into your home’s equity with a HELOC? Call, click, or stop by Mutual Credit Union today to get started. Our favorable rates, generous eligibility requirements, and easy terms, make a Mutual Credit Union HELOC a great choice.

Your Turn: How are you using your HELOC? Tell us about it in the comments.

Keyless entry is one of the most convenient features of newer cars. There’s no more fumbling for your keys when your arms are full of groceries or you’re toting a squirming toddler. Just press the “unlock” button to get inside and the “start” button to get the engine powered up, and your car will pick up the signals from your key fob.

Unfortunately, though, this user-friendly feature is also a favorite for car thieves. Security experts are warning of a relatively new scam centered on key fobs. In this scam, thieves use a simple device to pick up the signal from a vehicle’s key fob and use it to steal the car. What is very scary about this one is the fact that the fob can be safely hidden inside a car owner’s pocket or home while its signals are being hacked.

Here’s all you need to know about this scam and to learn how to protect your vehicle.

How it plays out

With keyless entry, the hotwiring car thief is a thing of the past.

The key fob scam, or “relay theft,” is frighteningly easy for people to pull off. Criminals purchase relay boxes, which are available on eBay and Amazon. They then use these devices to hijack the signal from a nearby key fob.

The boxes come in pairs, allowing the crooks to set up one box as close as possible to the probable location of the key fob, such as near a window or door to the car owner’s home. The second box is placed close to the car the criminal is trying to steal. The first box then reads the signal and “relays” it to the second box, tricking the car into registering the key fob as nearby. The thief can then unlock the car, start the engine and make off with the vehicle while the owner is oblivious to what is happening.

Keeping your key FOB safe

Thankfully, protecting your key fob signals from being hacked is easy. All you need is a little metal.

You can achieve this protection by securely wrapping your key fob in a small piece of aluminum foil. The foil will block the electromagnetic signals of the fob, making it impossible for a relay box to pick them up. A foil-wrapped key may look strange, but the key fob can be safely kept in a pocket when you’re out, and inside a kitchen drawer when you’re home, so no one has to know about it.

You can also choose to invest in a specially designed Faraday bag to keep your car safe. Retailing on Amazon for just a few dollars, these metal-lined pouches will block your fob’s signals from being read. There are also metal-lined key wallets on the market that serve the same purpose.

It’s best to test out the effectiveness of your signal blocker before using it for the long term. Wrap your key fob in foil or place it inside your Faraday bag or metal-lined wallet, stick it in your pocket and sit in the driver’s seat of your car. Try to start the vehicle. The car should not be able to detect the key fob. If it revs up as usual, the blocker is ineffective.

Protecting your car

If you’d rather not bother with foil and Faraday bags, you can also go the old-fashioned route and protect the car itself from possible theft.

One way to achieve this protection is through a steering-wheel lock. These locks work with actual keys that can’t be hacked. You won’t have a completely keyless entry and startup any longer, but it’s a small price to pay for the protection of your car. If a car thief hacks your key fob’s signal and starts the engine of your car, they won’t be able to drive off. The sight of the lock on your steering wheel can also serve as a deterrent for would-be thieves.

You can also protect your car from relay theft by keeping it out of sight and parking it in a garage.

If you own a pricier vehicle, it can also be worthwhile to invest in a security system.

Don’t let those scammers get your car! Take the precautions necessary to keep your key fob and your car safe from relay theft.

Your Turn: Do you own a car with “keyless entry”? How do you protect it from relay theft? Tell us about it in the comments.

Four-million Americans are receiving their Economic-Impact Payment in the form of a prepaid-debit card — and many are mistaking it for junk mail.

Last week, the U.S. Treasury Department and the Internal Revenue Service (IRS) began sending out Economic Impact Payments (EIP) as prepaid debit cards. The cards arrive in plain white envelopes that are strikingly similar to junk mail from credit card companies and scam mail. There’s no way to know that the card is from the federal government unless the recipient knows to expect it.

Reports are already pouring in from all over the country of people mistakenly tossing their EIP cards along with their junk mail. By the time they realize they’ve thrown out their long-awaited stimulus payment, it’s too late.

Here’s how to spot your EIP card, activate it and use it, in three easy steps:

Step 1: Spot your card in the mail

If you’re eligible for a stimulus payment and you haven’t yet received it via direct deposit or paper check, be on the lookout for your EIP card in the mail. The prepaid debit card will arrive in a white envelope with a return address from “Money Network Cardholder Services” of MetaBank in Omaha, Nebraska. There is no other marking on the envelope to indicate it’s been sent from the federal government.

If you think you may have mistakenly tossed your EIP card, don’t panic. You can still receive your payment by calling the toll-free customer service line at 800-240-8100 (TTY: 800-241-9100) to ask for a replacement. You can also check out the EIP website for additional information and assistance.

Step 2: Activate your card

Your EIP card will be accompanied by a letter with instructions for activating it. If the card has more than one name on it, only the primary cardholder — listed first on the card — may activate it.

Dial 800-240-8100 (TTY: 800-241-9100) and be prepared to share your name, address and Social Security number. You’ll also be asked to create a four-digit PIN, which you’ll use for all ATM transactions, automated assistance and to hear your balance. For security purposes, it’s best not to use personal information, such as your birth year or home address, as your PIN.

Watch out for scammers! Pay close attention when dialing the number to activate your card. Scammers have set up bogus EIP card call centers and are using numbers that are similar to the official one shared by the IRS.

Once your card is activated, you can create a username and password to use your card online at the Money Network site. You can also check out your balance information and transaction history at EIPCard.com or by calling the toll-free number listed above.

Step 3: Use your card

You can use your EIP card to make purchases anywhere Visa debit cards are accepted.

If you’d rather have your stimulus money in cash, you can get cash back with PIN debit purchases where available, or by withdrawing cash from an ATM that carries the Allpoint brand.

It won’t cost you money to use your card, except for a select few transactions. For example, if you make a balance inquiry at an ATM, you’ll need to pay $0.25. Also, you can make one free withdrawal from an out-of-network ATM, but you’ll be charged $2 for every withdrawal afterward. To find a surcharge-free ATM near you, check out EIPCard.com.

Keep your card safe; if you lose it, you’ll have to pay $7.50 to replace it. It’s also a good idea to keep track of your balance so you don’t end up at the register with a card that’s declined because of an insufficient balance.

Your Turn: How are you using your stimulus money? Tell us about it in the comments.