Key Takeaways
- Credit unions generally offer lower interest rates and fewer fees on home equity loans because they operate as not-for-profit cooperatives, returning savings to members rather than shareholders.
- Banks may provide advantages in convenience, technology, and accessibility—particularly for borrowers with existing relationships or those seeking larger loan amounts.
- Both credit unions and banks offer equally insured deposits up to $250,000 (NCUA for credit unions, FDIC for banks), so your money is protected regardless of which lender type you choose.
Tapping your home equity can be one of the smartest ways to access cash at a reasonable rate—but where you borrow matters almost as much as how much you borrow. Credit unions and banks both offer home equity loans, yet the rates, fees, and overall experience can differ significantly between them.
This guide breaks down how credit union and bank home equity loan rates compare, explains why the pricing gap exists, and helps you decide which lender type fits your financial situation.
In this article (Skip to...)
- Comparing credit union and bank home equity loan rates
- Why credit unions usually charge lower interest rates
- Home equity loan fees at credit unions vs banks
- HELOC credit union vs bank comparison
- Comparing credit unions vs banks HELOC lenders for processing and service
- Qualification requirements at credit unions vs banks
- How to join a credit union for a home equity loan
- When a bank might be the better choice for your home equity loan
- How to find the best home equity loan rate for your situation
- FAQs about credit union vs bank home equity loans
How credit union and bank home equity loan rates compare
Credit unions typically charge lower interest rates on home equity loans than banks do. The reason comes down to ownership: credit unions are member-owned cooperatives that don’t answer to shareholders, while banks are for-profit businesses that prioritize returns for investors.
A home equity loan is a fixed-rate, lump-sum second mortgage. You borrow against the equity you’ve built in your home, receive the full amount upfront, and repay it in equal monthly installments over a set term—usually 5 to 30 years.
The rate difference between credit unions and banks might seem small on paper. But even a quarter-point gap on a $50,000 loan adds up to real money over 10 or 15 years.
Typical credit union home equity loan rates
Credit union home equity loan rates often run 0.25% to 0.50% lower than comparable bank rates, though this varies by institution and your local market. In the current rate environment, well-qualified borrowers at credit unions may see rates starting in the mid-6% to low-7% range.
Your actual rate depends on your credit profile and how much equity you have. Many credit unions also offer rate discounts—sometimes 0.25%—for setting up automatic payments from a checking account held at the same institution.
Typical bank home equity loan rates
Bank home equity loan rates tend to sit slightly higher on average. Large national banks often price home equity products in the mid-7% to 8% range, though promotional rates and relationship discounts can bring these down.
Banks with extensive branch networks and polished digital platforms sometimes justify higher rates through convenience features. Still, rate competitiveness varies widely among banks, which is why comparing multiple offers matters.
Factors that influence your rate
Regardless of whether you choose a credit union or bank, several factors determine the rate you’ll receive:
- Credit score: Higher scores unlock lower rates. Most lenders reserve their best pricing for borrowers with scores above 740.
- Loan-to-value ratio: The more equity you have, the better your terms. Borrowing 60% of your home’s value typically gets better rates than borrowing 80%.
- Debt-to-income ratio: Lenders prefer borrowers whose monthly debt payments consume less than 43% of gross income.
- Loan amount and term: Larger loans or longer repayment periods may carry slightly different pricing than smaller, shorter-term loans.
Why credit unions usually charge lower interest rates
Credit unions operate under a fundamentally different business model than banks. As member-owned cooperatives, they don’t have shareholders expecting profits. Any surplus revenue gets returned to members through lower loan rates, higher savings yields, and reduced fees.
This structure creates a built-in advantage for borrowers. When a credit union saves money on operations, those savings flow back to you rather than to outside investors.
Credit unions also tend to have lower overhead costs than large banks. Many operate with smaller marketing budgets and fewer executive compensation packages, which translates into more competitive pricing on products like home equity loans.
Home equity loan fees at credit unions vs banks
Interest rates tell only part of the story. Fees can significantly affect your total borrowing cost, and this is another area where credit unions often have an edge.
| Fee Type | Credit Unions | Banks |
| Origination fees | Often waived or minimal | Common (0.5%–1% of loan) |
| Closing costs | Generally lower | Varies widely |
| Annual fees | Rare | More common |
| Prepayment penalties | Typically none | Sometimes applies |
Origination fees
An origination fee covers the lender’s cost of processing your loan application. Banks commonly charge 0.5% to 1% of the loan amount. Many credit unions waive this fee entirely or charge a flat fee under $500.
Closing costs
Closing costs include appraisal fees, title searches, recording fees, and other administrative expenses. Credit unions frequently absorb some of these costs or offer “no closing cost” options—though the trade-off may be a slightly higher rate.
Annual fees
Some lenders charge yearly maintenance fees on home equity products, particularly HELOCs. Credit unions rarely impose annual fees, while certain banks charge $50 to $100 per year.
Prepayment penalties
A prepayment penalty charges you for paying off your loan early. Most credit unions don’t include these penalties, giving you flexibility to refinance or pay down your balance ahead of schedule without extra cost.
HELOC credit union vs bank comparison
A HELOC (home equity line of credit) works differently than a home equity loan. Instead of receiving a lump sum, you get access to a revolving credit line—similar to a credit card—secured by your home equity. You draw funds as needed during a set period and pay interest only on what you borrow.
HELOC interest rates
HELOCs typically carry variable interest rates that fluctuate with market conditions. Credit unions often offer lower starting rates and may include rate caps that limit how high your rate can climb over the life of the line.
Banks sometimes offer promotional introductory rates on HELOCs, but these often reset to higher levels after 6 to 12 months. Reading the fine print on rate adjustment terms is especially important with variable-rate products.
Draw periods and repayment terms
Most HELOCs include a draw period (typically 5 to 10 years) when you can access funds, followed by a repayment period (often 10 to 20 years) when you pay back what you borrowed. Credit unions and banks offer similar term structures, though some credit unions provide more flexibility in customizing these periods.
Online application and account access
One common misconception is that credit unions lag behind banks in digital capabilities. Many credit unions now offer full online applications, mobile account management, and electronic document signing comparable to what you’d find at major banks.
That said, some smaller credit unions may have less sophisticated technology. If a seamless digital experience matters to you, checking the credit union’s online tools before applying is worth your time.
Check your HELOC options. Start here.
Comparing credit unions vs banks HELOC lenders for processing and service
Beyond rates and fees, the borrowing experience itself can differ between credit unions and banks.
Closing timelines
Home equity loans and HELOCs typically take 2 to 6 weeks to close. Credit unions with local underwriting may process applications faster than banks that route decisions through centralized offices, though this varies by institution.
Customer support accessibility
Credit unions often provide direct access to loan officers who handle your application from start to finish. Banks may route you through call centers where you speak with different representatives each time, which can create communication gaps.
Local decision-making
Credit unions frequently make lending decisions locally rather than through automated systems or distant underwriting centers. This can benefit borrowers with unique circumstances—like self-employment income or recent credit events—that don’t fit neatly into standard approval algorithms.
Compare home equity lenders now. Start here
Qualification requirements at credit unions vs banks
Both credit unions and banks evaluate similar factors when approving home equity loans, but they may apply different thresholds.
Credit score minimums
Most lenders look for credit scores of at least 620 for home equity products, with better rates available above 700. Credit unions may show more flexibility for members with lower scores, especially if you have a strong relationship history with the institution.
Maximum combined loan-to-value ratios
Your combined loan-to-value (CLTV) ratio measures your total mortgage debt against your home’s value. Most lenders cap CLTV at 80% to 85%, though some credit unions allow up to 90% for well-qualified borrowers.
Here’s an example: if your home is worth $400,000 and you owe $250,000 on your first mortgage, an 80% CLTV cap would let you borrow up to $70,000 through a home equity loan.
Debt-to-income requirements
Lenders typically want your total monthly debt payments—including the new home equity loan—to stay below 43% of your gross monthly income. Credit unions may consider compensating factors like substantial savings or a long employment history when evaluating borderline applications.
Verify your HELOC eligibility. Start here
How to join a credit union for a home equity loan
Many people assume credit unions are exclusive clubs they can’t access. In reality, most Americans qualify for membership at multiple credit unions.
1. Check if you already qualify
You may already be eligible through your employer, geographic location, family connections, or membership in certain organizations. Many credit unions have expanded their membership criteria significantly in recent years.
2. Search for credit unions open to your area or employer
The National Credit Union Administration (NCUA) maintains a credit union locator at MyCreditUnion.gov. Some credit unions accept anyone who lives, works, worships, or attends school in a particular region.
3. Open a share account to establish membership
Joining typically requires opening a savings account (called a “share account”) with a small deposit—often just $5 to $25. Once you’re a member, you can apply for home equity loans and other products.
When a bank might be the better choice for your home equity loan
Credit unions aren’t automatically the right choice for everyone. Banks may offer advantages in certain situations:
- Existing banking relationship: If you already have checking, savings, and a mortgage with a bank, you may qualify for loyalty rate discounts that close the gap with credit union pricing.
- Larger loan amounts: Some banks accommodate jumbo home equity loans more easily than credit unions with smaller balance sheets.
- Nationwide accessibility: Banks with extensive branch and ATM networks may be more convenient if you travel frequently or relocate often.
- Bundled products: Banks sometimes offer rate discounts when you combine multiple products, like a home equity loan with a checking account and credit card.
How to find the best home equity loan rate for your situation
The most important step is comparing offers from multiple lenders—both credit unions and banks.
- Compare at least three lenders: Getting quotes from several institutions helps you identify the best combination of rate, fees, and terms.
- Request Loan Estimates: Federal law requires lenders to provide standardized Loan Estimates that make apples-to-apples comparisons easier.
- Consider total cost: A slightly higher rate with no closing costs may cost less overall than a lower rate with $2,000 in fees.
- Check your credit first: Knowing your credit score before applying helps you set realistic expectations and identify any errors to dispute.
Tip: Shopping for rates within a 14-day window counts as a single inquiry on your credit report, so comparing multiple lenders won’t hurt your score.
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FAQs about HELOC cooling off periods
No. Credit unions often have more flexible underwriting than banks. Because they make decisions locally and prioritize member relationships, they may work with borrowers who have lower credit scores or non-traditional income sources that larger banks might decline.
No—you'll need to join the credit union before applying for any loan products. However, membership requirements are often easy to meet through your location, employer, family connections, or by joining an affiliated organization. The process typically takes just a few minutes.
Monthly payments depend on your interest rate and loan term. At 7.5% over 15 years, a $50,000 home equity loan would cost approximately $463 per month. At the same rate over 10 years, payments would be around $594 per month.
Most credit unions serve specific geographic areas or membership groups, so availability varies. Some larger credit unions—like Navy Federal or PenFed—have broad membership eligibility and serve members nationwide. Checking with local credit unions or searching for national options can help if your area has limited choices.
