Average home equity line of credit (HELOC) rates for loans with a 20-year repayment period dropped to 6.84%, down from 7.31% the week prior, according to Bankrate data from the week ending November 14. Meanwhile, rates for loans with a 10-year repayment period increased to 5.64% from 5.50% the week prior, and 30-year HELOCs remained stagnant at 6.49% for the second straight week. Of course, the rates you personally may qualify for will vary, and you can see the lowest HELOC rates you may get now here.
Pros and cons of a HELOC
HELOCs can be one of the most affordable loan types for homeowners with significant equity in their homes — often offering cheaper rates than personal loans or credit cards. Thanks to that, they also can be a wise choice for borrowers looking to consolidate high-interest debt or fund home improvement projects.
But there are plenty of caveats with HELOCS too. For one, it’s important to mention that because you put your home on the line as collateral when you take out a HELOC, you run the risk of losing your home if you don’t repay the loan. And HELOCs tend to have variable rates, which means you may need to be prepared for higher monthly payments down the road.
How do HELOCs work?
HELOCs are composed of a two-part structure, often 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 decide to withdraw as little or as much money as they like. But as soon as the repayment period begins, money can no longer be withdrawn and the borrower must pay back the principal in addition to interest. It’s also important to note that because HELOCs are based on the amount of equity someone has in their home, the amount of money a borrower qualifies for will vary.
How to get the best rates on HELOCs
Borrowers with higher credit scores, lower debt-to-income (DTI) ratios and substantial equity in their home tend to get the most competitive rates, often with lower interest rates than they’d receive on credit cards or personal loans. (To calculate your DTI, add up your monthly bills including your mortgage payment, credit card, child support, insurance, and other debts, and then divide the total by your gross monthly income.) Be sure to shop around for the best rates on HELOCs, and compare not only the rates, but also fees and other terms.
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