HELOC rates fall again, now to their lowest levels since September
HELOC rates fall again, now to their lowest levels since September

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HELOC rates fell again last week and hit their lowest level since September last week, with an average interest rate of 3.59% for a 10-year repayment period (unchanged from the week previous year) and 5.89% for a 20-year repayment period (down from the previous week), according to data released Monday by Bankrate, which reviewed data for the week ending Nov. 28. Granted, many people will get higher rates, but others may get a much lower one: Some HELOC rates now start below 2%, and you can find the rates you qualify for here. But HELOCs aren’t for everyone, and here’s what you need to know before considering one.

What exactly is a HELOC and how does it work?

A home equity line of credit, colloquially known as a HELOC, is a type of loan taken against the available equity in one’s home, in which the lender provides a revolving line of credit that homeowners can use. Since HELOCs generally have variable interest rates, the amount you owe during the repayment period will vary depending on the base interest rates and their trend.

These types of loans tend to work well for those who don’t need a lump sum of money all at once (if this is your situation, a home equity loan might be better; find the best home equity loan rates you can qualify for here) and who may need more flexible repayment terms. “A home equity line of credit offers the lowest interest rate and the most flexibility, both in terms of the ability to borrow money as needed rather than all at once, and flexibility in repayment terms over the first 10 years,” says Greg McBride. , chief financial analyst at Bankrate. Experts say some of the best uses for a HELOC are for a home improvement project, to pay medical bills, or to consolidate high-interest debt.

HELOCs typically contain drawdown periods during which the borrower is permitted to draw from their line of credit. During the drawing period, which is usually 10 years, the borrower is usually only required to pay the interest on the loan; once the drawdown period is over, the borrower can no longer use the line of credit and must repay the loan balance, including principal and interest. This repayment period usually lasts 20 years. Note that your HELOC may contain a conversion clause, which allows a loan to change from an adjustable rate to a fixed interest rate for an additional fee for a specified term during the loan.

The key caveat with a HELOC is that you’re using your home as collateral, so if you’re having financial trouble and can’t make the payments, your home may be at risk, says Bobbi Rebell, Certified Financial Planner and Personal Finance . expert at Tally. Another thing to keep in mind are HELOC fees – initial costs including application fees, title search, appraisal and more can cost hundreds of dollars, so if you’re looking for a small ready, there might be a better solution out there.

How much money can I borrow?

You’ll need the equity in your home to get a HELOC, and lenders typically allow borrowers to take out up to about 85% of their home’s value.

What factors determine how much I will pay for a HELOC?

You need things like a good credit score (the best rates usually go to people with a score of 740 or higher, but you can qualify for a HELOC with a lower score); a reasonable debt-to-income ratio (the lower the better, 43% being about the highest acceptable figure); and an acceptable loan-to-value ratio. To calculate the LTV ratio, divide the amount borrowed by the appraised value of the property. If a home is valued at $400,000 and your mortgage balance is $140,000, your LTV is 35%.

“A credit score of 740 will generally get you the best HELOC rates, although some lenders set the bar even higher. Although some lenders allow you to borrow up to 85% of the value of your home, if you borrow 70% or less, you’ll likely get a better rate,” says Denny Ceizyk, Senior Writer at LendingTree. McBride adds, “Keeping your total borrowing, including your first mortgage and whatever line of credit you seek, at no more than 80% of the home’s value is a common prerequisite for getting the best rates,” McBride says.

According to Holden Lewis, real estate and mortgage expert at NerdWallet, the best HELOC rates go to customers with the following characteristics: “Their monthly HELOC payment is automatically debited from another account with the same bank, they have a high credit score ( typically 740 or higher) and the line of credit is 70% or less of the appraised value of the home,” says Lewis.

How to get a HELOC

McBride recommends comparing lenders to find the best rates. Get quotes from 3-5 different lenders and compare not only rates but also terms. Also ask about discounts: Ceizyk says you may be eligible for additional discounts if you link your monthly payment to your checking or savings account.


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