What is a HELOC?

A HELOC, or home equity, line of credit is a loan that gives the borrower a line of credit that can be drawn down when needed using the equity in a home as collateral. Unlike home loans, borrowers don’t have to borrow a large lump sum at once and only pay interest on the amount borrowed.

The benefit of using a HELOC is that a borrower can pay for things like home improvement or debt consolidation potentially at a lower interest rate than a high interest credit card or many personal loans, and you only pay interest on the amount you use. However, the HELOC rates are often variable, so they can be higher. Seriously think about borrowing against your home equity, especially if you have worked many years building it. Read more about HELOCs here.

What interest rate can you expect from a HELOC?

The interest rates for HELOCS are currently low. In September 2021, the average interest rate on a $ 50,000 HELOC was 4.17% assuming a loan-to-value ratio of 80%, according to data from S&P Global. That’s about the same as August (4.19%) and less than May when it was 4.27%. Note that you will usually get the best interest rates if you have a higher credit score (740 and above is a good benchmark) and a Mortgage Lending Ratio (current loan balance ÷ estimated house value = LTV) of 80. have% or less.

While there are some fixed rate HELOCs, most have floating rates, which means they can go up and down over the life of the loan. To begin with, the lower rates may offer lower monthly payments, but it’s important to understand that payments can change or increase over the course of the repayment period. S.ee the HELOC tariffs you qualify for here and below.

A lender may offer you a lower introductory price to entice you into a HELOC. Be aware, however, that your rate (and payments) may go up after your introductory period is up, so make sure you can afford that.

Where can I get the best price for a HELOC?

The best way is to compare the rate offers from different lenders, said Mark Garces, vice president of secondary marketing for PenFed Mortgage. You can compare HELOC offers here.

When talking to lenders, it is important to find out how often and how much your payments can change. An important question to ask yourself is whether you will repay both principal and interest, or interest only, during different terms of the loan. “Even if you are paying back part of the principal, ask if your monthly payments will cover the entire amount borrowed or if you owe an additional repayment at the end of the loan,” advises the Federal Trade Commission.

When inquiring about the interest rates on a loan, it is important to research what repayments might look like, what fees are associated with the loan, and how this can affect your monthly finances. You don’t want to be overwhelmed by payments and risk losing your home.