LTV Why is it Important - HELOCs Explained

Loan-to-value (LTV) is the percentage of a home's value that is financed by a mortgage, including a home equity line of credit (HELOC). The LTV (Loan to Value) ratio is a critical factor for lenders when considering an application for a HELOC.

For example, if your home is valued at $300,000 and you have a $150,000 mortgage, a lender might offer you a HELOC up to a maximum LTV ratio, often around 80%. This means the total of your outstanding mortgage and your HELOC cannot exceed $240,000 (80% of your home's value).

Understanding your LTV ratio is essential, as it can affect the terms of your HELOC, including the credit limit and interest rate. Lenders use the LTV ratio to assess the risk of lending. To improve your LTV ratio and potentially qualify for better HELOC terms, consider paying down your existing mortgage or making home improvements that increase your property's market value.

Why Homeowners Choose HELOCs

There are several reasons why homeowners opt for a HELOC over other financing options. The primary appeal lies in its flexibility and often lower interest rates compared to personal loans and credit cards. With a HELOC, you don't have to borrow the entire amount at once; you can use the funds as needed, which can save you money in the long run. Home improvement projects, debt consolidation, and emergency funds are common uses for HELOC funds.

Qualifying for a HELOC

To qualify for a HELOC, you must typically have at least 15-20% equity in your home after considering the HELOC and your existing mortgage balance. Your credit score, income, and employment history will also be significant factors in determining your eligibility and the terms of the agreement.

More Information:

HELOCs Explained Draw Period

From the CFPB: What You Should Know About Home Equity Lines of Credit

At SCU Credit Union we offer our members home equity lines of credit and home equity loans with competitive rates and flexible terms. For Home Equity Lines of Credit, we lend up to 80% of the assessed value or up to 80% of the appraised value, whichever is less, minus the remaining balance on your first mortgage on 1-4 family owner occupied residences.

You can apply online or stop in at one of our branches for assistance or reach out to our member service call center at 781-784-7725 or toll free at 1-877-661-3300.