According to Bankrate data for the week ending August 1, home equity line of credit (HELOC) rates for loans with a 10-year payback horizon have remained at 5.49 percent for the third consecutive week.
The rates on 20-year HELOCs increased from 7.25 percent the week before to 7.26 percent, and the rates on 30-year HELOCs continued to fall, now standing at 5.84 percent as opposed to 5.93 percent.
READ ALSO:Â Easy Steps to Create Your Google My Business Account
How to get the best HELOC rate
The greatest rates on HELOCs are typically offered to borrowers with stronger credit scores, lower debt-to-income (DTI) ratios, and significant home equity; these rates are frequently lower than those on credit cards or personal loans. Add together all of your monthly expenses, such as your mortgage payment, credit card balance, child support, insurance, and other debts, then divide the total by your gross monthly income to determine your DTI. To ensure that you are accepted and to assist you receive the best rates and conditions on a HELOC, the percentage that lenders are seeking for you to provide should be 36 percent or lower.
How do HELOCs operate?
HELOCs have a two-part structure with a 30-year term that is typically made up of a 10-year draw period and a 20-year repayment period. A borrower may take out as much or as little cash as they like throughout the draw time, either in little amounts or all at once. However, once the payback period starts, withdrawals are prohibited, and the borrower is required to repay the principal as well as interest. The amount of money a borrower qualifies for will vary because HELOCs are based on the amount of equity someone has in their property.
Who might benefit from a HELOC?
HELOCs tend to be one of the most economical loan kinds for homeowners with large equity in their houses, so they can be a wise choice for borrowers who wish to consolidate high-interest debt or fund home repair projects. However, it’s crucial to keep in mind that if you don’t return a HELOC, you could lose your property because of the offered collateral.
Pros of a HELOC
Lower interest rates: HELOCs typically have lower interest rates than other home equity loans, personal loans or credit cards.
Long draw and repayment periods: Most HELOCs let you withdraw money for as long as 10 years, and then offer an even longer repayment period (usually up to 20 years).
You can take the money in installments: You don’t have to use all of the money available at once, and you only have to pay interest on the funds you withdraw.
Cons of a HELOC
You have to use your own home as collateral: If you default on a HELOC or can’t make your payments, you could lose your home. When you put a house up as collateral and cannot repay your loan, the bank or lender can foreclose on your home, which means they can take ownership of your house in order to make up for the money they lost.
They have variable interest rates: Your initial interest rate may be low, but HELOC rates are variable and not fixed. This means they can fluctuate depending on what’s happening with the economy and the benchmark interest rate. This means your monthly payments are not predictable and can fluctuate over the course of the loan. While there are fixed-rate HELOCs, they are less common and are considered a hybrid between a HELOC and a home equity loan.
There may be minimum withdrawal amounts: Some HELOCs have minimal initial withdrawal amounts, which could lead you to taking out more money than planned (and having to pay back more than planned).
