HELOCs can be used to cover large expenses, home remodels and repairs, medical bills, and more.
Home equity line of credit (HELOC) rates for loans with a 20-year repayment period ticked up slightly to an average of 6.16%, according to the latest rates from Bankrate for the week ending April 18. But for 10-year loans, rates held steady at 4.06%. You can see the lowest home equity rates you might qualify for here.
All about HELOCs
HELOCs are revolving lines of credit given to homeowners based on the amount of equity they have in their home. HELOCs can be used to cover large expenses, home remodels and repairs, medical bills, and more. One thing that separates HELOCs from other types of loans is that once funded, the borrower can use the money on an as-needed basis — either all at once or in increments over time.
HELOCs typically have both a draw period and a repayment period. The draw period for a HELOC is usually the first 10 years of the loan. During this time, the borrower is only required to make interest payments. Once the draw period comes to a close, the repayment period ensues and the borrower can no longer withdraw funds. They are then responsible for repaying the principal and interest.
HELOCs often yield more favorable interest rates than other types of loans because lenders are guaranteed the equity in your home as collateral. (You can see the lowest home equity rates you might qualify for here.) Another reason HELOCs are popular is because there’s a lot of flexibility in how they can be used, from high-interest debt consolidation to home improvements and even emergency medical expenses. Something else that makes HELOCs appealing are variable interest rates which may mean lower introductory rates followed by rates that fluctuate over the life of the loan — meaning yes, over time, they can become higher.
It’s imperative that borrowers stay on top of interest and principal payments. Should you default on either, the lender can come after your home. Another factor to consider is that applying for a HELOC costs hundreds of dollars upfront. Lenders often charge appraisal fees, application fees and title search fees during the application process.
Getting a HELOC
You may expect that you’re entitled to a massive loan, but even homeowners with lots of equity don’t always receive as much money as they anticipate. This is because lenders often want borrowers to retain a 20% equity stake in their home. If you need more money than that, it might be worth considering a loan that isn’t …….