Home equity line of credit (HELOC) rates for loans with a 20-year repayment period have risen slightly to an average of 6.16%, according to Bankrate’s latest rates for the week ending April 18. . But for 10-year loans, rates are stable at 4.06%. You can see the lowest rates you could qualify for here.
All about HELOCs
HELOCs are revolving lines of credit given to homeowners based on the equity in their home. HELOCs can be used to cover large expenses, home renovations 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 as needed, either all at once or in increments over time.
HELOCs usually have both a draw period and a redemption period. The drawdown period for a HELOC is generally the first 10 years of the loan. During this time, the borrower is only required to pay interest. Once the drawdown period ends, the repayment period ensues and the borrower can no longer withdraw funds. They are then responsible for repaying the principal and interest.
HELOCs often offer 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 equity rates you might qualify for here.) Another reason HELOCs are popular is that there’s a lot of flexibility in how they can be used, from consolidation from high-interest debt to home improvements and even emergency medical expenses. Another thing that makes HELOCs attractive are the variable interest rates, which can mean lower introductory rates followed by rates that fluctuate over the term of the loan – which means yes, over time they can become higher.
It is imperative that borrowers have control over interest and principal payments. If you default on either, the lender may 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.
Get a HELOC
You can expect to qualify for a massive loan, but even homeowners with high net worth don’t always receive as much money as they expect. Indeed, lenders often want borrowers to retain a 20% equity interest in their home. If you need more money than that, it might be worth considering a loan that isn’t based on home equity. However, if you are in no rush to borrow a specific amount of money, a HELOC can be advantageous because you don’t need to withdraw all of the funds and if you end up using all the funds, you won’t don’t need to use them all at once.
When applying for a HELOC, experts recommend shopping around and getting three to five quotes from different lenders to ensure you get the best rates and terms.