Introduction: How to Find the Best Home Equity Line of Credit Rates
Since the mortgage crisis in 2008, many banks are more reluctant to give out mortgage loans or lines of credit on a home’s equity.
The interest rates for home equity line of credit were exorbitantly high during the mortgage crisis and this left thousands of people simply unable to pay back the money owed on their home equity line of credit interest rates.
The home equity line of credit rates are more controlled today than in the past, thus making it possible to apply for a line of credit in situations where that credit is necessary.
Many people have the majority of their wealth and savings tied up in the value of their home. However, those savings are often out of reach unless you apply for a home equity line of credit with good rates.
Image Source: Home Equity Line of Credit Rates Comparison
If you find the lowest home equity line of credit rates, you can use the value of your home for large and important expenses or also for improvements on your home that might very well increase the value and equity tied up in your home over the long run.
Whereas in the past many banks would give out home equity line of credit with fixed rates to anyone who asked, the majority of banks in today’s economy will only consider giving out lines of credit for expenses that will increase the overall, long-term value of the home.
In this brief article, we will look at the differences between a home equity line of credit and a home equity loan. Furthermore, we will help you understand what to look for in best line of credit rates as well as do a home equity line of credit rates comparison. We have thoroughly researched the home line of credit rates on the market to help you find the best option.
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Home Equity Line of Credit Rates Comparison with a Home Equity Loan
Before discussing the best home equity line of credit rates, it is important to understand the differences between a home equity loan and a home equity line of credit. A home equity loan is commonly referred to as a second mortgage and is usually a one-time lump sum withdrawal on the value of your home.
A home equity loan is a great option for people who want a large, lump sum of money for big, one-time expenses such as a home renovation. These loans usually come with a fixed interest rate, and the interest you pay is most often tax deductible.
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Usually structured with a fixed interest rate, a home equity loan is a good source of funds for major projects and one-time expenses. And because the interest rate is locked in, it’s easy to budget for a regular monthly payment. Remember, that loan payment will be in addition to your usual mortgage payment. However, if the equity in the housing market falls suddenly, a home equity loan can be economically harmful when compared to the lowest home equity line of credit rates.
A home equity line of credit, different from a home equity loan, allows the borrower to draw funds from the value of your home for an extended period of time through the use of a debit card or check writing.
You only pay interest on what you withdraw, which makes this option preferable for people who don’t plan on making large, one-time payments. Furthermore, home equity line of credit rates usually begin with lower interest rates than home equity loans. These rates, however, aren’t home equity line of credit fixed rates but rather variable rates that fluctuate according to the rate benchmarks.
Image Source: Home Equity Loan
Home equity line of credit rates, in comparison to home equity loans, allow more flexibility of interest-only payments during the draw period, but can lead to over-spending, increasing debt, and losing the equity in your home in people who lack financial self-discipline.
Nerdwallet.com advises that “many HELOCs also allow interest-only payments during the initial draw period, after which principal and interest payments are required. When the repayment period begins, no further draws on the line of credit can be made.
And term-limited home equity lines of credit can mature, with the remaining balance plus accrued interest becoming immediately due, for example at the end of 10 years.”
In summary, home equity lines of credit with good rates are best for people who need to borrow money over an extended period of time and who have the necessary discipline to use that money only for needed expenses.
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What to Look for in a Home Equity Line of Credit Rate
There are a number of things to consider when looking for the best rates for home equity lines of credit. Not all banks or credit agencies will offer the same packages, and you need to be on your toes to find a deal that will not leave you in debt or cause you unneeded headaches.
Interest Rates on Home Equity Line of Credit
Obviously, the most important issue when looking for home equity line of credit rates is to search for the lowest home equity line of credit rates. There is definitely a surplus of predatory lenders out there. Even though governmental controls have begun to crack down on subprime mortgages and unfair home line of credit rates, there are still a number of banks and agencies you will want to avoid.
When you are searching for quality home equity line of credit rates, the first thing you will want to search for is an interest rate that is manageable. However, be careful not to rush into a low APR line of credit without looking at the other charges and fees that may accrue.
Draw Period on Home Line of Credit Rates
Many home equity lines of credit may have fantastic interest rates for home equity line of credit, but may have short or limiting draw periods that could cause you problems if you are looking to draw money over a long term.
According to Nerdwallet.com, “you can withdraw money against your line of credit during the “draw” or “advance” period. After the draw period ends, you can’t pull any more money out—and the repayment period begins. You definitely want to know how long the draw period lasts.”
Beware of Balloon Payments on the Best Line of Credit Rates You Research
The interest rates on home equity line of credit may be artificially low if your line of credit includes a dangerous balloon payment at the end of your loan cycle. Many times, home equity line of credit rates may look very low because they will require you to pay an extremely high one-time payment at the end of the term.
Balloon payments can be manageable if you plan for them, but it is important not to be tricked into the lowest home equity line of credit rates if you are not prepared to pay for the balloon payment at the end of your loan term.
Look for Rates for Home Equity Line of Credit That Charge Little to No Inactivity Fees
Lastly, you should also search for home equity lines of credit rates that do not also mandate a minimum balance or withdrawal. If you don’t need to take money out, you shouldn’t be penalized for that.
Furthermore, you need to do a home equity line of credit rates comparison in order to avoid signing up for a loan where you will be charged inactivity fees. These fees for not taking a withdrawal are simply unfair and need to be avoided, even if the loan comes with best line of credit rates.
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Top 5 Best Home Equity Line of Credit Rates and Home Equity Line of Credit Rates Comparison
The following review looks at the top five best home equity line of credit rates. This home equity line of credit rates comparison will help you discover the pros and cons of some of the most well esteemed lenders on the market.
Lending Tree
Lending Tree is actually a broker (rather than a bank) that connects people who are looking for a favorable home credit line of credit rate with a pool of lenders. Thus, while searching for the best rates for home equity line of credit, you also will be put in contact with a number of opportunities that will allow you to compare and choose.
You will receive multiple loan offers and have the ability to choose the most favorable home line of credit rate that fits your unique situation. The only downside to Lending Tree is that there is a rather high minimum loan amount that may push some lenders out of their services.
Key Bank
Key Bank is a great option when searching for the best line of credit rates because they have less strict requirements. If your credit isn’t the best, they allow you to use your second home as collateral for your line of credit.
TD Bank
TD Bank is unique in that it offers overdraft protection to people who have home equity line of credit with them. They have online services, but will require you to close in person if you find a favorable home line of credit rate and decide to loan from them.
Third Federal
Third Federal has some of the best home equity line of credit rates that we researched. If you are only searching for the lowest home equity line of credit rates, then this may be the bank for you. However, Third Federal doesn’t offer rate lock for the lines of credit which could unexpectedly lead to high rate increases.
Citizens Bank
Lastly, Citizens Bank is a good choice, as their rates for home equity line of credit are comparable to others on the market. They also allow you to use a second home as collateral for the line of credit. However, their customer service is not as great as other banks and require you to be more knowledgeable of your options.
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Online Home Equity Line of Credit Rate Calculators
Another way to search for good home equity line of credit rates is through online calculators.
Mortgagecalculator.org is a good option as it allows you to see your possible cash out according to a variety of loan to value percentile ranges in one simple test. You can use this tool for reference once you start checking out rates with various banks.
Bankrate.com also offers an online tool here. This tool doesn’t help you calculate interest rates or cash outs, but rather helps you make the decision whether to apply for a home equity line of credit rate or a home equity loan.
This tool involves slightly more steps to use correctly, it does consider more in depth issues and will help you make a good decision based on your own individual needs.
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Conclusion: The Importance of Research in Your Search for the Best Rates for Home Equity Line of Credit
Taking the time to do a home equity line of credit rates comparison is extremely important if you do decide to borrow against the equity in your home. You need to find the best line of credit rates that are available, as well as find a bank or lender that won’t cause you a hassle with various fees and penalties.
With a favorable home line of credit rate, however, you can use the equity in your home to increase your home’s value in the long run.
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