A Home Equity Line Of Credit (HELOC) is a type of loan given to a consumer where the lender offers a predefined amount of money for a specified period of time, referred to as a term. The collateral for the loan is often the borrower’s equity on their house.
HELOC is a great way to take advantage of the value of your home and get some money to help you on the go. As a borrower, you won’t be given the full amount of money up front, rather, a line of credit applies where you borrow amounts that do not exceed the set credit limit.
HELOC works in a manner similar to credit cards. You can borrow this money within the draw period and repay that amount with interest. The interest is however lower compared to that of credit cards which makes it attractive to many homeowners.
HELOC interest rates are set in reference to the prime rate which is still quite low. This makes you better placed to find a perfect HELOC rate. With that said, let’s look at 3 tips to getting the best HELOC rate:
- Have Sufficient Equity
The amount of equity on your home determines how small or big your equity line is as well as the interest rate that you get. The higher your equity is, the less debt overload you’ll place on your home and the more chances you’ll have of lenders wanting to work with you.
An easy way to know how much you have on your home equity is to get an online estimate for your home’s value and then subtract the mortgage balance that you owe from that value.
Your mortgage debt and home equity line shouldn’t be above 80% of your home’s overall value. If it is, it’s highly unlikely that you’ll get the best HELOC rate.
- Build A Good Credit Score
Finding a good HELOC rate depends greatly on how your credit score is. Credit bureaus will be able to give you a full detailed credit report. Before you apply for HELOC, ensure that your credit record is clean and that there are no debts surfacing that would degrade your credit score.
Closing down a credit card or taking up a new debt before getting a HELOC is a wrong move to make as it would reduce your credit score. What will follow after if you do so is that you’ll get a high-interest rate when you apply for HELOC. Ensure that your credit score is good.
- Enquire About Caps And Rate Changes
HELOC comes with adjustable rates which fluctuate based on the current prime rate. Some lenders will, however, for the initial period, fix your rate. Enquire from a lender what your starting rate will be, for what period of time it will hold and if there’s a cap for how high your rate can go.
The absence on a cap means your monthly payments may be increased by your interest rate to the point that you are not able to comfortably pay for them.
Those three tips will guide you in getting a great HELOC rate. If you are a homeowner and consider this a great idea, then here is our recommendation of the best HELOC rates. Check them out today.