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HELOC stands for "Home Equity Ling Of Credit." Instead of being setup as a typical home loan for a fixed dollar amount, a HELOC is setup as a line of credit with a maximum credit limit. For example, using a standard mortgage you might borrow $100,000, which would be completely paid out at closing. In contrast, a HELOC loan would set the limit at 100,000, allowing you to draw money by writing a check or using a special credit card.


Typically, a HELOC is a second mortgage. Some, however, choose to refinance their first mortgage using a HELOC as a substitute for a standard mortgage. While this method may add convenience, it is risky. First, using a "line of credit" concept makes it easy to forget that your home is pledged as collatral in the even of non-payment. Second, a HELOC is an adjustable rate mortgage, but is more risky than a standard ARM because it is based on the prime rate. Changes in the market affect a HELOC interest rate very quickly.


HELOC loans come with some marked advantages as well. First, they are perfect for those who have intermitent financial needs such as home improvements, college tuition, and credit card debt. Also, you only pay interest on what you need. The second advantage is that a HELOC closing costs are relatively low. On a standard mortgage, the closing costs usually range from $2,000 - $5,000. On a HELOC, the up front costs are typically around $1,000 and are often covered by the lender.

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Denali Federal Credit Union
440 E. 36th Ave
Suite 220
Anchorage, AK 99503
Phone: 907-257-1601 Fax: 907-222-5815