These HELOC rates just hit their lowest level since January
Home equity line of credit (HELOC) rates for loans with a 10-year repayment period held steady this week at 3.99%, but for loans with a 20-year repayment period, rates fell to their lowest levels since at least January at 5.81%, according to Bankrate’s latest rates for the week ending March 28. Of course, the rates you might qualify for could be significantly higher or lower than these (you can see the lowest rates you might qualify for here).
Mortgage loans: understanding the pros and cons of home equity lines of credit
HELOCs are designed to allow homeowners to access cash based on the equity in their home. This line of credit can be used as needed, which can be beneficial for someone taking on a project, such as a home improvement project, where they don’t know exactly how much money they might need.
But they also come with big risks: If you default on a HELOC, you can lose your home because your home is the collateral for the loan. And it’s important to understand that the nature of HELOCs is different from many other types of loans in that they have a different repayment period and they often come with variable rates, so paying a borrower may fluctuate over time. (Fixed-rate HELOCs do exist, but they’re just less common.)
Here’s how the refund generally works: HELOCs are divided into two periods. The first is the drawdown period, which is often 10 years, during which a borrower can withdraw funds from their line of credit, usually paying interest only. The second is the repayment period, which is usually 20 years, during which the borrower can no longer draw on their line of credit and must instead repay the principal plus interest.
Tips for getting a HELOC
Just because you have some equity in your home doesn’t mean you can expect to receive a huge line of credit when you take out a HELOC. Most lenders 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 an alternative. Yet HELOCs are sought after to help cover projects and expenses that do not have an overall price, because no matter how much a lender offers a borrower, the borrower is not required to take all the money.
The pros recommend getting quotes from a few lenders to ensure you get the best rates and terms on a HELOC. Another thing that the pros recommend: ask the lender about the discounts to which you may be entitled.