The nationwide run-up in real estate valuations has given credit unions another way to tap the lending spigot.
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A growing number of credit unions are offering their members credit cards tied to home equity lines of credit. These HELC-backed cards offer members the ability to use their rising home values to help finance large-ticket items, such as college tuition for their children, while allowing them to deduct the interest from their taxes, just as they would regular home equity loans, credit union officials say.
The rate on the cards tends to be a little higher than the rates on other types of consumer loans, but the higher rates are offset by lower minimum payments and the tax deductions available.
For credit unions it offers another way to expand lending during a time of slow loan growth, and the loans are secured with an extra lien on real estate.
"Everybody's got a home equity program. All we did was throw a credit card onto it," said Patrick Boyle, financial analyst with Metro CU, Warren, Mich., which has offered its members a HELOC-backed Visa card for three years. "This has proven real popular with our members and helped us attract new members."
"It's such a benefit to credit union members to have a credit card that's tax deductible," said Valerie Brown, president of Service One FCU. The Bowling Green, Ky., credit union has offered the HELOC-backed Visa Gold card for more than four years, during which time members have opened 400 accounts and tapped their cards for $11-million in loans, she said.
Under Service One FCU's program, the rate on the card is variable, currently at 8.5%; payment is interest only, and the maturity is 15 years.
What One Credit Union Offers
Metro CU offers two HELOC-backed cards, based on the loan-to-value ratio of the borrower's home mortgages. Both have low minimum payments and 13-year maturities on the loans.
The HELOC-backed Visa Platinum card has a picture of a house on it to help members differentiate it from their regular Visa Platinum card, explained Boyle. The card is good for five years before it has to be replaced.
During the three years it has offered the program Metro CU has run up $10-million in outstanding loan balances with negligible defaults. "Delinquencies on this product are virtually nil," said Boyle.
So far credit unions have been slow to adopt the HELOC-backed cards, according to Boyle, who gave a presentation last month to credit union officials at a conference sponsored by PSCU Financial Services, which processes Metro CU's card transactions. "It's still catching on," he said. "For some reason it hasn't really spread institutionally among other credit unions as it has ours."
