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Decoding the Home Equity Line of Credit (HELOC): Weighing the Pros and Cons for CUNA Mutual Group Employees

'For CUNA Mutual Group employees, a Home Equity Line of Credit (HELOC) is a great way to tap home equity for convenience and flexibility, but it is important to understand the risks involved, including the variable rates and the fact that you may be putting your home at stake, says Paul Bergeron, a representative of The Retirement Group, a division of Wealth Enhancement Group.'

'A HELOC can indeed be a useful tool for the financial flexibility that CUNA Mutual Group employees may require, but only if it is used correctly to support long-term retirement goals, advises Tyson Mavar, a representative of The Retirement Group, a division of Wealth Enhancement Group.'

In this article, we will be discussing:

1. The advantages and the flexibility of a Home Equity Line of Credit (HELOC).
2. The pros and cons of HELOCs and things to consider before applying for one.
3. Other ways to get financial flexibility instead of a HELOC.

Homeownership, including for those who work for CUNA Mutual Group companies, provides an opportunity to tap the value of the residence. One way of tapping this ownership stake is through a home equity line of credit (HELOC). While a home equity loan provides a lump sum upfront, a HELOC allows you to borrow smaller amounts at a time. This type of borrowing structure is very useful because you are only required to draw the funds you need at any particular time, thus helping you manage your finances better.

It can be used for home repairs, college tuition, or any other purpose you need the money for, and a HELOC can be a useful tool in tapping the equity in your home. HELOCs have other advantages, which include lower APRs than credit cards, the ability to deduct interest payments to the IRS, flexible withdrawals and repayments, and helping to boost your credit score. But there is the other side, and it includes the following: the loan has to be secured by your home, you will stake your home equity, the interest rates may rise, and you might end up accumulating a big balance fast.

Understanding a Home Equity Line of Credit (HELOC)

A HELOC is a type of credit that you can borrow at a time of need. Like credit cards, HELOCs are assets that have a variable interest rate, which means that the monthly payment will change according to the rate at the time of borrowing. Typically, a HELOC has a maximum limit that is tied to the equity in your home. You can choose to take part of it or the whole amount of your line, and you pay interest only on the amount that you have borrowed. For instance, if you have not used any of your credit line, you will not be required to pay principal or interest on the credit line.

Benefits of a Home Equity Line of Credit (HELOC)

If you are a homeowner with a lot of equity in your home, then a HELOC has several benefits that make it worthwhile to consider.

Access to Lower APRs:

Although overall mortgage interest rates have risen significantly since 2022, some of the best HELOC rates are still generally lower than those of credit cards. This makes HELOCs good for debt consolidation or for financing ongoing renovation projects.

Potential Tax Deductions:

The Tax Cuts and Jobs Act of 2017 did not eliminate the ability to deduct the interest on a home equity line of credit (or home equity loan) so long as the money is used to fix the home. To qualify for this deduction, the interest must be used to ‘buy, build or improve the home that is secured by the loan.’ There are certain thresholds and requirements for deductibility and the itemizing of deductions is required.

Flexibility in Borrowing:

The main advantage of a HELOC is that the money can be spent when it is needed. One disadvantage of home equity loans and personal loans is that they provide the borrower with a lump sum amount of money; a HELOC, however, allows the borrower to take money when he or she needs it. This is particularly useful where the amount of money that will be required for the renovation or repair is not well defined because it enables the borrower to make smaller monthly payments if he or she requires less than expected.

Repayment Flexibility:

HELOCs are usually flexible as to the payment of the amounts drawn. The life of your HELOC can also vary based on the amount of money you want to borrow and the lender you are working with. Some HELOCs permit you to make payments during the draw period towards the balance, though.

Potential Credit Score Boost:

A HELOC can help improve your credit score by showing that you make timely and regular monthly payments. Payment history and credit mix are important components of your credit score, and managing a HELOC responsibly can help improve your credit profile.

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Considerations of a Home Equity Line of Credit (HELOC)

Although HELOCs have their advantages, it is crucial to know about the considerations and potential drawbacks that come with them.

Home as Collateral:

When taking a HELOC, you are putting your home on the line. Although this can lead to lower interest rates, it also comes with more risks. Missing monthly payments can have severe consequences as your home is at stake.

Variable Interest Rate:

Home equity loans have a fixed interest rate, while HELOCs have a variable interest rate. This means that your interest rate will change with the Federal Reserve’s actions. Even if you get a HELOC with a low rate, it is important to be ready for the rates to change in the future.

Risk of Overspending:

One of the downsides of HELOCs is the tendency to spend money impulsively because of the freedom that comes with them. During the draw period, which is characterized by interest-only payments, borrowers may draw cash without considering the long-term effects of their actions. When you begin making payments during the repayment period, you may be surprised at the increase in your payments if you haven’t set aside funds or created a budget, as you would during the draw period.

Reduction in Home Equity:

A HELOC is, in fact, a loan that allows you to borrow money from your home equity. You will be paying money to your home equity account when you use a HELOC. As for the home values, there is a possibility that you may end up owing more on your home than it is worth, especially if the housing market is not doing well. Also, having an outstanding HELOC may limit your ability to get more borrowing from your home equity.

HELOC Repayment: How It Works

The repayment of HELOC is quite unique and the required payments and methods of calculating them change over time. Generally, a HELOC has two main phases: The draw period and the repayment period. You are required to make minimum monthly payments of only the interest during the draw period that usually ranges from 5 to 10 years. The amount you are likely to pay will increase every time you withdraw more money from the credit line since the interest will be charged on the higher balance. The payment will also change with the change in the interest rate. Some HELOCs permit you to make payments during the draw period from the balance, though. After the draw period, you transition to the repayment period, which can go up to 20 years. In this phase, you are expected to make payments that will cover the interest and a part of the principal amount. This means that the payment will be different during the draw period and when the draw period ends and the repayment period starts. Although not common, some HELOCs have a balloon payment provision that requires the borrower to make a balloon payment at the end of the draw period to settle the loan. It is, therefore, important to check on the terms of your loan so as not to be caught unawares by a large payment duty.

Alternatives to a Home Equity Line of Credit (HELOC)

However, not everyone may find a HELOC to be the best choice for them. Look at these loan alternatives when choosing the one that is right for you.

Home Equity Loan:

Home equity loan is the same as HELOC, but you will not receive the credit line; you will receive the money in one sum. A home equity loan has a fixed interest rate and a set repayment period, which makes the monthly payments constant. Home equity loans might be suitable for you if you need the money upfront and know how much you need.

Cash-Out Refinance:

A cash-out refinance is when the mortgage is replaced by a new one with a larger balance. This kind of refinance provides you with up to 80 percent of the value of your home in cash. For instance, if your house is $400,000 and you have a balance of $200,000, you can get a cash-out refinance of up to $320,000, which would give you $120,000 in cash (excluding closing costs).

Personal Loan:

A personal loan has a fixed monthly payment, a fixed interest rate, and a lump sum payment. Personal loans are unsecured, and you do not have to put your home on the line to get one. Personal loans have higher rates than home equity products but are easier to apply for, and you can get them online. They are ideal for people who do not want to tap their home equity.

In conclusion, HELOCs are a type of home loan that allows homeowners to tap their home equity, but there are other considerations that should be made before applying for one. As with any other financial product, HELOCs have their pros and cons, which include lower APRs and tax deductions as advantages and the use of your home as collateral, variable interest rates, overspending, and a reduction in home equity as disadvantages. Knowing the specifics of a HELOC’s repayment is important when managing the financial responsibilities that come with the loan. Reviewing other loan options can also help in coming up with the best solution depending on the individual’s needs and circumstances.

Research has been conducted to determine the impact of a HELOC on 60-year-old individuals who are approaching retirement and planning to retire. According to a 2018 study by the National Bureau of Economic Research, retirees who had access to a HELOC used it to cover unexpected expenses or to enhance their financial flexibility during retirement and had better financial security and satisfaction than those without a HELOC. This indicates that a HELOC can be used as an emergency fund and financial tool to help retirees manage unexpected expenses or boost their retirement income. (Source: National Bureau of Economic Research, 2018)

A HELOC can be compared to a personal financial toolbox that people, including retired employees of CUNA Mutual Group companies, can turn to during their retirement. Like a well-stocked toolbox, which is equipped with the right tools for different home improvements, a HELOC provides financial tools that allow people to withdraw money from their home when they need it. It serves as a flexible credit line that can be used for renovations, for unexpected expenses, or to enhance retirement income. However, just as one should handle tools with care and caution, there are some risks and potential problems that should be taken into consideration when using a HELOC. These may include fluctuating interest rates and the fact that the collateral is the homeowner’s home. With this knowledge, people can use HELOC to their advantage to improve their retirement planning and make better decisions concerning their future.

Sources:

1. National Council on Aging (NCOA). 'What Is a Home Equity Line of Credit (HELOC)? A Guide for Older Adults.' National Council on Aging , 9 Jan. 2024, www.ncoa.org/article/what-is-a-home-equity-line-of-credit-heloc .

2. “How to Use a HELOC Strategically in Retirement.” NerdWallet , 5 Oct. 2022, www.nerdwallet.com/article/mortgages/heloc-strategies-retirement .

3. Fidelity Bank. 'A Retiree's Guide to Leveraging Home Equity in NEPA / Lehigh Valley.' Fidelity Bank , 2024, www.fidelitybankpa.com/retirees-guide-helock-lehigh-valley .

4. 'Can You Get a HELOC in Retirement?' Point Blog , 6 Dec. 2024, www.point.com/blog/heloc-retirement-eligibility .

5. CBS News. 'Is a Home Equity Loan or HELOC Safer for Seniors in 2025?' CBS News , 2025, www.cbsnews.com/articles/home-equity-loan-heloc-seniors-2025 .

What are the key differences between defined benefit plans and defined contribution plans offered by CUNA Mutual Group, and how might these differences affect my retirement benefits? As an employee of CUNA Mutual Group, understanding the nuances of defined benefit plans versus defined contribution plans is critical for effective retirement planning. Defined benefit plans typically promise a specific payout at retirement based on factors such as salary history and duration of employment. In contrast, defined contribution plans, like 401(k) plans, depend more on employee contributions and investment performance. Given the volatility in investment returns and changing employment patterns, employees might find themselves at a crossroad between predictable retirement income versus self-directed savings and investment risks. It's vital to explore how these plans could impact long-term financial security at retirement.

A defined benefit plan at CUNA Mutual Group offers predictable retirement payouts, typically based on salary history and years of service, ensuring employees a guaranteed income in retirement. In contrast, defined contribution plans, such as a 401(k), rely heavily on individual contributions and investment performance. Employees may face risks with defined contribution plans due to market volatility but benefit from greater control over their retirement savings. Depending on your financial situation and retirement goals, these differences can impact how secure your future income will be, either through guaranteed payouts or potential growth in investments.

How are pension costs determined in a defined benefit plan at CUNA Mutual Group, and what factors can influence these costs over time? The cost structure of a defined benefit plan at CUNA Mutual Group is predicated on various components, including service costs, interest costs, expected returns on assets, and amortization of gains and losses. Understanding these factors helps in managing potential burden changes on the organization's budget and employees' retirement expectations. For instance, factors such as fluctuating interest rates can significantly alter the present value of future liabilities, affecting the costs that CUNA Mutual Group bears. Employees should be versed in these aspects to contextualize their retirement benefits.

Pension costs at CUNA Mutual Group are influenced by factors such as service cost (new benefit accruals), interest cost (growth on past benefits), expected return on plan assets, and the amortization of gains or losses. Changes in these factors, like fluctuations in interest rates or salary adjustments, can affect the overall cost of the plan. Employees should be aware of how these variables impact their future pension benefits and how changes to the company's funding strategy could alter expectations.

What strategies can CUNA Mutual Group adopt to manage the costs and benefits of its defined benefit plan without drastically impacting employees' retirement security? CUNA Mutual Group faces the challenge of balancing cost management for its defined benefit plan while also ensuring that employees have adequate retirement benefits. Options like freezing benefit accruals, amending contribution formulas, or shifting to defined contribution plans can be explored. However, such strategies must be handled delicately to avoid significant disruptions to employees' retirement planning. Understanding employee concerns and the potential ramifications of these strategies is crucial to formulating a balanced approach.

CUNA Mutual Group can adopt strategies such as freezing benefit accruals, transitioning to cash balance designs, or reducing benefit formulas to manage costs. These strategies may lower expenses but must be carefully balanced to avoid significantly affecting employees' long-term retirement benefits. Clear communication about potential changes and their impact on retirement income is crucial for employees to adjust their retirement planning.

In what ways could regulatory changes influence the CUNA Mutual Group's pension plan design and its offerings to employees after retirement? Regulatory bodies frequently revise guidelines that govern employee benefit plans, potentially impacting how CUNA Mutual Group structures its pension offerings. For instance, changes to tax policies or pension funding requirements could affect administrative decisions regarding contribution levels or payout structures for defined benefit plans. It is imperative for employees to stay apprised of these regulations so they can understand any changes that might occur in their future benefits and what steps CUNA Mutual Group might take to adapt to new compliance needs.

Regulatory changes, such as adjustments in pension funding requirements or tax policies, can have a substantial impact on CUNA Mutual Group’s pension plan design. Changes in laws may require adjustments to benefit levels, contribution structures, or funding strategies. Employees should monitor such regulatory shifts to understand how they could influence future pension payouts and retirement strategies.

Could you explain the process employees at CUNA Mutual Group would need to undertake to access their retirement benefits upon leaving the company? For employees transitioning from CUNA Mutual Group to other ventures, itâ€™s essential to understand the process involved in accessing retirement benefits. This process may involve determining eligibility for pension payouts, selecting between lump-sum distributions or annuitized payments, and understanding how past contribution levels affect final benefits. Employees are encouraged to seek guidance from the HR department or pension plan administrators to navigate this process thoroughly.

When leaving CUNA Mutual Group, employees need to assess their eligibility for pension benefits, choose between lump-sum payouts or annuities, and understand how their years of service and contributions affect the final payout. It's advisable to consult with HR or a plan administrator to navigate the options and ensure that the benefits are accessed appropriately.

What tools and resources does CUNA Mutual Group provide to assist employees in planning for retirement effectively? CUNA Mutual Group offers various resources designed to support employees in their retirement planning journey. These might include access to financial planning tools, informational webinars about defined benefit and contribution options, or one-on-one consultations with benefits specialists. Employees should actively participate in these offerings as a means of optimizing their retirement readiness and ensuring they are leveraging all available benefits to the fullest extent.

CUNA Mutual Group offers several resources for retirement planning, such as access to financial planning tools, retirement webinars, and consultations with benefits specialists. These resources are designed to help employees make informed decisions about their defined benefit and defined contribution options, ensuring they optimize their retirement strategies.

How does the CUNA Mutual Group approach the issue of pension funding, and what implications does this have for current and future employees? The funding strategy for the pension plan at CUNA Mutual Group has significant implications for the benefits that employees can expect. A well-funded pension plan can provide assurance for employees about the stability and security of their retirement income. Conversely, fluctuations in the funding status could lead the organization to consider changes in benefit formulas or contribution strategies. Employees should be aware of how funding levels could affect their future benefits and the overall health of the pension plan.

CUNA Mutual Group’s pension funding strategy is critical to maintaining the stability of retirement benefits. A well-funded plan assures employees of predictable payouts, while underfunded plans may lead to changes in benefit formulas or contributions. Employees should stay informed about the funding status, as it could affect the future security of their pension income.

What should employees at CUNA Mutual Group know about the potential risks and benefits associated with their defined benefit plan? Employees should have a clear understanding of the inherent risks and benefits linked to CUNA Mutual Group's defined benefit plan. While these plans offer predictable retirement income, they are subject to various risks such as underfunding issues, market volatility, and regulatory changes. This understanding equips employees with knowledge about their eventual retirement income and helps them plan strategically alongside their professional developments or transitions within their careers.

Employees need to understand that defined benefit plans at CUNA Mutual Group provide predictable retirement income but come with risks such as underfunding, economic fluctuations, and regulatory changes. By staying informed about these risks, employees can better plan for their financial security in retirement, potentially supplementing their pension with other savings strategies.

What happens to my retirement benefits if CUNA Mutual Group decides to freeze its defined benefit plan? The implications of freezing a defined benefit plan at CUNA Mutual Group would be substantial for employees. Understanding the details surrounding such a freeze, including whether it would impact future accruals or merely limit new benefits for incoming participants, is crucial. Employees should consider consulting HR for comprehensive information regarding their specific situations and how a freeze could influence their expected retirement payouts.

If CUNA Mutual Group freezes its defined benefit plan, employees may no longer accrue new benefits, though they retain previously earned benefits. A freeze could impact future retirement income, particularly for employees nearing retirement, as they could miss out on years of service accruals or salary increases factored into their final benefit calculation.

How can employees contact CUNA Mutual Group to inquire further about their retirement benefits and related services? To learn more about retirement benefits, employees should reach out directly to CUNA Mutual Groupâ€™s HR department or designated pension plan administrators. The organization provides channels such as in-person meetings, phone consultations, and online resources which are specifically structured to assist employees with inquiries related to their retirement benefits and participant obligations. Employees can also explore dedicated web portals for additional information and updates on their pension plans.

Employees can contact CUNA Mutual Group directly through their retirement solutions division at 1-800-356-2644 or visit the website at CUNA Mutual Retirement Solutions for more information about retirement planning services and personalized assistance with their retirement benefits.

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For more information you can reach the plan administrator for CUNA Mutual Group at 5910 Mineral Point Rd Madison, WI 53705; or by calling them at (608) 238-5851.