Are you considering refinancing? If so, then a home equity line of credit, or HELOC, maybe the way to go.
A HELOC is a loan tied to your home’s value. It is set up as a revolving line of credit with an adjustable interest rate indexed to the prime rate. Another form of the HELOC gives you a fixed-rate option, allowing you to leverage your home equity into cash, refinancing, or for debt consolidation. Moreover, you can also opt for low, fixed-rate personal loans with no fees that will make the loan more convenient for you. Besides, HELOC there are various loan providers that can give you a loan with similar conditions.
Whichever option you choose, a HELOC offers a lower interest rate than other loans, in addition to the ability to get cash in the way you want or need. For example, you can draw off your line of credit by writing a check, by using a specifically designated credit card, or in a variety of other ways. A HELOC also gives you access to the equity that’s been built up in your home – an often-large amount of money that you might otherwise not be able to tap.
HELOCs hold benefits for many kinds of borrowers. For example, if you’re a first-time homebuyer who put down 20% or less when financing your home, you’re probably juggling two loans. Not only are you responsible for the balance on your home, but you’re also paying for mortgage insurance that covers a lender’s risk in giving you money. Even if you’ve opted for a fixed-rate loan to cover the principal, your mortgage-insurance payment is subject to rising interest rates.
With the specter of rising rates a continued reality, rolling your two loans – the principal and the mortgage insurance – into a single HELOC might make a lot of sense. It will likely reduce your interest rate, which in turn could save you a significant amount of cash.
If you’re considering debt consolidation, a HELOC will allow you to roll credit cards and other consumer debt into a loan with a much lower rate. For example, credit cards often charge an annual percentage rate of 25% or more, while HELOC rates are usually less than a quarter of that amount.
When shopping for a HELOC loan, make sure to ask lenders about introductory rates and periods, margins, a minimum draw against the line of credit, required average balance, and up-front fees as well as annual and cancellation fees.
Keep in mind that since HELOCs are tied to the prime rate, your payment will adjust with rate changes. For that reason, you might want to weigh the fixed-rate option. It’s generally best to go with adjustable-rate loans if you plan to stay in your house for a short (less than 5 years) time, but if you want to keep your house for a longer period, the fixed rate may be the better choice. And as with any financial decision, do your research before signing on the dotted line.