Home equity line of credit (HELOC) rates for loans with a 20-year repayment period decreased to 7.78%, from 7.82% the week prior, according to data from Bankrate. Meanwhile, loans with a 10-year repayment period stayed nearly the same at 5.76%, and 30-year HELOCs remained at 6.49% for the sixth straight week. (See some of the lowest HELOC rates you can get here.)
Pros and cons of a HELOC
For homeowners with significant equity in their home, HELOCs tend to be one of the most affordable types of loans, particularly compared to personal loans or credit cards. They also allow for more flexibility than many other types of loans, like a home equity loan or a personal loan in that you can use just the portion of the line of credit that you need rather than taking the money as a lump sum. That means you are charged interest just on the amount that you’ve actually borrowed.
But, there are a couple of caveats to consider. You run the risk of losing your home if you’re unable to repay the loan, because you’re using your home as collateral when you take out a HELOC. Plus, the rates on HELOCs tend to be variable, which can cause repayment challenges, and the amount of money a borrower qualifies for will vary depending on the amount of equity someone has in their home.
How HELOCs work
HELOCs are composed of a two-part structure, typically with a 10-year draw period and a 20-year repayment period that together equal a 30-year term. During the draw period, a borrower can withdraw upon any part of the money that’s available to them, but as soon as the repayment period begins, money can no longer be withdrawn and the borrower must begin to pay back the principal in addition to interest.
How the best rates on HELOCs
For the most competitive rates, often with lower interest rates than you’d receive on credit cards or personal loans, you’ll want to have a high credit score, low debt-to-income (DTI) ratio and substantial equity in your home. You’ll also want to shop around for the best rates and terms. This guide offers additional tips for getting the lowest rate on a HELOC.
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