May 21st, 2019 8:52 AM by Jackie A. Graves, President
Need cash? A
home equity line of credit, or HELOC, offers a convenient and flexible way of
tapping into the value of your home.
It works in a
way that’s similar to a credit card: You can borrow what you need from the
credit line as the need arises, over a period of time.
interest is often much lower than you’d find on credit cards, so many
homeowners turn to HELOCs to pay down higher-interest debt or make home
improvements. The interest rates are tied to the prime rate,
which is still relatively low.
Here are some
tips for getting the very best rate on a home equity line of credit.
Have good credit
One of the
most important things a lender looks at in determining your interest rate are
your credit report and credit score. You can get a free credit report on Bankrate.
You can also
get your credit report from the three major credit-reporting bureaus (Equifax,
Experian and TransUnion) before you apply for your HELOC to make sure there are
no errors or old debts on your credit record that may be hurting your score.
not to close a credit card or take on new debt before applying for a HELOC.
Both moves can lower your credit score and result in a higher interest rate.
Have enough equity
The amount of
equity you have in your home helps determine the size of your home equity
credit line, and it also influences the interest rate you’re able to get.
equity you have, the less likely you are to be weighed down by debt against
your home, and the better you look to lenders.
To get an
idea of how much home equity you have, find an online estimate for the value of
your home and subtract the balance owed on your mortgage.
A HELOC lender
generally won’t want the home equity line and your existing mortgage debt to
exceed 80 percent of your home’s value.
for a low HELOC rate starting with the lender who holds your current mortgage,
or the bank where you keep your checking account or savings.
financial institutions want to keep your business and might offer you a good
deal on your HELOC.
rate you’re offered by a lender to those offered by other players, including:
lenders have lower operating costs, which can mean lower rates. But local banks
and credit unions may have a better understanding of your market and offer
people who want face-to-face contact, there’s really no substitute for a local
branch where you can sit down with the lender and go through various options,”
says Rick Sharga, a consultant for real estate, financial services and tech
You can compare HELOC offers from multiple lenders on
Ask about rate changes and caps
think you’ve found an awesome rate on a HELOC, find out how long it will last
and how it might change.
A home equity
line of credit typically comes with an adjustable rate that fluctuates with the
movement of the prime rate. However, some lenders may give you a fixed rate for
an initial period.
lender about your starting rate, how long it will hold and whether there’s a
cap on how high your rate can go. If there is no cap, you run the risk of the
interest rate raising your monthly payment above what you can afford.
that during the first stage of a HELOC, you can draw from your credit line and
pay only the interest as your minimum monthly payment. At the end of that draw
period, which can last five years or more, your monthly payment will include
both interest and principal.
something you need to understand, that your payments could double in a few
years,” Sharga says.
Use Bankrate’s calculator to figure out what
your HELOC payments will be and how much interest you’ll pay over the life of
Beware of fees
Don’t be so
dazzled by a low HELOC rate that you miss fees that could be hiding in the
loan. Some lenders will charge upfront fees, third-party fees, an annual fee or
require you to draw a minimum amount of credit to avoid a fee.
Make sure you
understand all the fees you might be paying in addition to your interest rate.
The additional costs can add up.
When you are
considering a HELOC, here are some essential things to look for:
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