Should you consider a home equity line of credit?
Home equity line of credit (HELOC) rates for loans with a 20-year repayment period rose to an average of 6.07%, up from most of March but still lower than rates were in early February, according to the latest rates from Bankrate for the week ending April 11th. And for 10-year loans, rates climbed a bit to an average of 4.06%. You can see the lowest rates you might qualify for here.
What is a HELOC?
A HELOC gives a homeowner the ability to take money out in the form of a revolving credit loan, based on the amount of equity they have in their home. Once the money has been funded, the borrower can use it as-needed, either all at once or in small increments over a period of usually about 10 years. During this period, referred to as the draw period, the borrower is only required to make interest payments on the loan, but once the draw period ends and the repayment period begins, the borrower can no longer withdraw funds, and they’re required to pay back principal along with interest.
Interest rates for HELOCs are often more favorable than loans that are unsecured because lenders have the promise of your home on the line when you take out a HELOC. In addition to favorable rates, HELOCs are popular because of their flexible nature — they can be used for a variety of expenses including home improvements, high-interest debt consolidation, medical emergencies and more.
But because it’s common for HELOCs to offer variable interest rates, even if the loan is initially appealing because of lower introductory rates, prepare for your payment amount to fluctuate over the life of your 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 defaulting on a HELOC means the lender can come after your home. Something else to consider when applying for a HELOC is that there are often a fees like appraisal fees, application fees and title search fees that can total hundreds of dollars.
How to get a HELOC
Temper your expectations, because even homeowners with significant equity in their home don’t always receive the massive loan amount they think they’re going to get. Lenders often want borrowers to retain a 20% equity stake in their home, so if the amount of money you need to borrow exceeds this, you may want to consider a different type of loan …….