The average rate for a $30,000 HELOC is at 9.16% as of May 29. This average is based on a 30-year term, a 80% loan-to-value ratio and a 700 FICO score.
This analysis is powered by Bankrate, which gathers data from applicants who prequalify for HELOCs through its website and affiliates.
A home equity line of credit is a form of revolving credit that is secured by your home. Similar to a credit card, you can borrow against the credit line as needed – up to the limit. When you do so, you pay interest on the balance. As you pay the balance down, more of your credit line opens back up.
Unlike a credit card, however, HELOCs have what’s known as a draw period. This is the time when you’re allowed to spend against your credit limit and are only required to make minimum or interest-only payments. Typically, the draw period lasts 10 years and the repayment period lasts 20 years.
Home equity loans and lines of credit each allow you to borrow against the equity in your home. However, there are some key differences. A home equity loan is dispersed as one lump sum that you pay back in fixed installments over time. A HELOC allows you to borrow as much or as little as you need, when you need it, up to the maximum credit limit. Once the draw period is over, you enter the repayment period. HELOC interest rates are often variable rates, meaning they can adjust up or down over time.
HELOCs often have lower rates than home equity loans. Plus, if your borrowing needs change month to month, a HELOC is a great way to ensure you have access to credit when you need it.
Another perk is that HELOC interest may be tax deductible. If you use your HELOC funds to substantially improve your home, you may be able to write off the interest on your taxes.
On the downside, your property serves as the collateral for a HELOC. That means if you have trouble making payments once the draw period is up, your home could eventually be at risk of foreclosure. In addition, when you borrow against your line of credit, you decrease the equity in your home. If you decide to sell, you’ll see a smaller profit since you’ll also need to pay off your HELOC. And if home values drop, you could owe more on your house than it’s worth.
Also consider that unlike installment loans, the interest rates on HELOCs are variable. While there’s a chance your rate could go down, it’s more likely that it will increase.
- Home equity loan. If you don’t anticipate any ongoing borrowing needs and only need to finance a specific expense, you may prefer to take out a home equity loan. This allows you to receive the cash you need up front and then pay it off in fixed monthly installments over five to 30 years.
- Refinance. Another way to access your home’s equity for cash is through cash-out refinancing. This involves taking out a new mortgage loan for more than you currently owe and pocketing the difference to put toward another expense. This can be particularly beneficial if you can qualify for a lower mortgage rate.
- 0% APR credit card. Some credit cards offer a 0% annual percentage rate to new users for an introductory period that typically lasts 12 to 21 months. If you go this route, it’s important to pay off your balance before the introductory period is up. Otherwise, you could rack up interest charges quickly when the rate adjusts.
- Personal loan. Though they usually come with higher interest rates than HELOCs, personal loans can be a less expensive borrowing option than credit cards. Plus, you don’t have to use your home as collateral, which means it’s not at risk of foreclosure if you fall behind on payments.
Most lenders won’t issue a HELOC unless your combined loan-to-value ratio is at most 85%, according to Bank of America. Exact credit score requirements vary by lender. You may be able to qualify for a HELOC with a score of 660, according to Credit Union of Southern California, though some lenders ask for a higher score. A higher score can also help you secure better rates and terms. A lower debt-to-income ratio will leave you in a better position to get a loan.
Exact credit score requirements vary by lender. You may be able to qualify for a HELOC with a score of 660, according to Credit Union of Southern California, though some lenders ask for a higher score. A higher score can also help you secure better rates and terms.
Lenders typically require an appraisal when you apply for a HELOC in order to get an accurate property valuation. This is because the value of your home, your mortgage balance and creditworthiness determine whether you qualify. It also helps figure out the amount you can borrow against your home.
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