Should you consider a home equity line of credit?
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Home equity line of credit (HELOC) rates for loans with a 20-year repayment period averaged 6.07%, up from most of March but still below rates early February, according to Bankrate’s latest rates for the week ending April 11. And for 10-year loans, rates rose a little to 4.06% on average. You can see the lowest rates you could qualify for here.
What is a HELOC?
A HELOC gives a homeowner the ability to withdraw cash in the form of a revolving credit loan, based on the amount of equity in their home. Once the money has been funded, the borrower can use it as needed, either all at once or in small installments over a period of around 10 years. During this period, called the drawdown period, the borrower is only required to make interest payments on the loan, but once the drawdown period ends and the repayment period begins, the borrower can no longer withdraw funds and is required to repay the principal with interest.
Interest rates for HELOCs are often more favorable than for unsecured loans because lenders have the pledge of your home at stake when you take out a HELOC. In addition to great rates, HELOCs are popular because of their flexible nature — they can be used for a variety of expenses, including home renovations, high-interest debt consolidation, medical emergencies and more.
But since it’s common for HELOCs to offer variable interest rates, even if the loan is initially attractive due to lower introductory rates, be prepared for your payment amount to fluctuate over the life of your term. loan, even if your starting rate seems low and stable.
And just because HELOCs can be relatively easy to get, you want to stay on top of your interest and principal payments, because failing a HELOC means the lender can come after your home. Another thing to consider when applying for a HELOC is that there are often fees like appraisal fees, application fees, and title search fees that can add up to hundreds of dollars.
How to get a HELOC
Moderate your expectations, because even homeowners with significant equity in their homes don’t always receive the massive loan amount they think they’ll get. Lenders often want borrowers to retain a 20% equity interest in their home, so if the amount of money you need to borrow exceeds this amount, you may want to consider another type of loan that is not based on the equity in your home. But if your expenses are uncertain and you are unable to anticipate the exact amount of money needed, a HELOC offers cash that you can draw on as needed.
Experts suggest getting 3-5 quotes from different lenders to ensure you get the best rates on a HELOC, and also recommend finding out about any discounts you might be eligible for.
