Get The Best Home Equity Line Of Credit: Unlock Up To 95%

April 29, 2021

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HELOC

Are you thinking about tapping into your home’s equity to pay off debt or cover a major expense? Taking cash out isn’t your only option. A home equity line of credit, or HELOC, gives you flexibility to access a large sum, but only take money out as you need it. You only have to make payments on the amount you’ve actually borrowed, which helps keep your payments and interest lower. A HELOC can give you peace of mind in the face of unpredictable expenses like  home improvements or college tuition, without borrowing more than you need. The best home equity line of credit is one that offers a low rate, high borrowing limit, and a trustworthy lender.

Quick Plan

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Understand what a HELOC is

HELOCs are lines of credit secured by your home.

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Find the best rate

Make sure your interest rate is low, to avoid ballooning fees.

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Apply for the loan

The process should be similar to your original mortgage.

A Quick HELOC Overview

In a standard refinance, you take out a new loan that replaces your original mortgage. There are different types of refinances—from lowering your rate or changing your term to taking cash out. In almost all cases, you'll have just one loan. A HELOC is different.

What is a HELOC?

A HELOC is separate from your first (original) mortgage. It’s a second loan secured by your equity in the house—the current value of the property minus what you still owe. Unless your home is paid for, you’ll have two payments to make. But, depending on the amount you borrow, your HELOC payment can be very low. Even if you’re approved for a large amount of credit, you’ll only be paying on the funds that you actually borrow.

How much can I access with a HELOC?

The actual amount you can access depends on a variety of factors—like your lender and your home. Here at Lower, we offer a HELOC up to 95% loan-to-value (LTV) while the industry standard is only 80%. The difference between 80% and 95% LTV can increase the amount you can access by tens of thousands of dollars.

For example, If your home is valued at $250,000, you can finance up to 95% of that total, which is $237,500. If you still owe $150,000, you’ll have to figure that into financing, which leaves you with a total $87,500 for your HELOC. If you don't want to do the math yourself, just calculate it.

Only pay for what you need

Regardless of however much you are approved to take out, when you're not using those funds, you don’t pay any interest. If you spend, say, $10,000 for a kitchen remodel, you’ll only make payments on that amount. As you pay down that balance, your payments will go down. But you can dip in and borrow more at any time.

How do I access my HELOC funds?

Since it’s a revolving source of funds with a credit limit, a HELOC behaves a lot like a very low interest credit card. The rate is significantly lower than traditional credit cards or personal loans because it is secured by your home. You can typically access cash from the account by online transfer or by using a check or debit card connected to the account.

A HELOC behaves like a very low interest credit card. It’s secured by your home, so the rate is significantly lower.

Why do people take out HELOCs?

Many homeowners take out a HELOC for home improvement projects—using their home’s equity to improve their home’s value. A line of credit is the perfect tool for this since it’s difficult to predict the total cost of most projects ahead of time.

College is another big-ticket item that can be difficult to estimate ahead of time. Most parents have no idea what the final bill of the semester is going to look like or how much they should set aside for dorm furniture, spending money, and travel expenses. Having access to a large amount of credit at a reasonable rate can be a tremendous comfort during the college years.

Paying off personal debt with a lower-interest HELOC can also be smart financial move. Unsecured loans like credit cards and personal loans typically carry much higher interest rates than mortgage-backed loans like HELOCs because unsecured loans aren't backed by any collateral. HELOCs also offer longer terms so you can make much smaller monthly payments. Lower payments and less interest expense can put you on the road to better long-term financial health.

HELOC Interest Rates

Most HELOCs have adjustable rates, meaning they go up and down over time. Typically, the interest rate will be based on an index rate plus a personalized markup that is based on factors like credit score and debt obligations. If you’re perceived as a low-risk borrower, your rate will be lower. High-risk borrowers have to pay higher rates.

Questions to ask about your rate:

  • What index is used—prime rate or something else?
  • What margin is being added to determine your rate?
  • How often can the rate change?
  • What is the periodic cap, or maximum amount the rate can change at once?
  • Does the rate have a lifetime cap? If so, what is it?
  • Can you convert the loan to a fixed-rate later?
  • Is the initial rate discounted? If so, for how long? How much will the rate increase at the end of the discount period?

The periodic and lifetime caps determine how high your loan rate could go in the future.

HELOC Advantages and Disadvantages

Is a HELOC right for you? Weigh your options using these pros and cons.

Advantages

  • Borrow as needed (With a HELOC, you only pay interest on what you borrow, not your approved amount.)
  • Less over-borrowing (And more responsible spending. Because you borrow as needed, you only add to your debt when you need to.)
  • Interest-only draw periods (You don't have to worry about paying the loan back until the repayment period.)
  • Comparatively low interest rates (With a HELOC, you’ll probably pay less interest than you would with a personal loan or credit card.)
  • Flexible for any purpose
  • Easy to access funds
  • Access to a potentially large amount of cash
  • No need to reapply every time you want to borrow; just write yourself a check
  • Much lower interest than a personal loan or credit card
  • Longer terms (10-15years vs. 1-5 years) than a personal loan, meaning lower payments
  • Variable rate is a positive when interest rates go down

Disadvantages

  • Your home as collateral (As with any home loan, if you default on your payments, you could lose your home. This can be avoided by doing the math and making sure you can afford your mortgage, other bills, and HELOC repayments.)
  • Loan-to-value increase (It’s all about balance. Taking out a HELOC causes your loan-to-value ratio to increase. On one hand, your home value could rise over time. That’s great. In other cases, you could end up owing more than your home is worth if the value decreases. That’s called being underwater on your mortgage. Looking at the home value trends in your area can help you decide.)
  • Unpredictable interest rates (While most HELOCs have comparably low interest rates to credit cards and personal loans, that rate may also be variable. Depending on the market, you could end up paying more than you would if you had a home equity loan.)
  • Is it worth it? (If you don’t need to borrow much cash, the loan may not be worth the cost of the appraisal, title search, and other lending expenses.)

A HELOC’s variable rate can be an advantage or a disadvantage, depending on rate trends.

Where to find the best home equity line of credit

As an industry standard, most lenders allow you to take up to 80% of your home’s value out in a HELOC. Here at Lower, we offer up to 95%—and the difference can be huge. To use the example above, if your home is valued at $250,000 and you still owe $150,000, your 95% LTV HELOC would be up to $87,500. At 80% LTV, it would only be $50,000. That’s a big difference in how much you can access.

How to apply for a HELOC

Applying for a HELOC is simple here at Lower. Step 1: Calculate the funds available to you. Step 2: Apply. We don’t require a hard credit pull just to see if you qualify, so you can check out what you qualify for without commitment.

After you’ve submitted your application, getting qualified for a HELOC is very similar to applying for a mortgage or refinancing.

  • Gather documents that show your income and assets (W-2s, 1040s, paycheck stubs, bank statements.)
  • Once you speak with a loan advisor and they submit your full application, you’ll receive a loan disclosure document. Read this document carefully to ensure you understand your rate, rate caps, and any initial draw requirement.
  • During the underwriting process, you may need to get an appraisal of your home’s value. This can cost anywhere between $400 and $600.
  • Close the loan and gain access to your equity.

Sure—the process may take some time and there are expenses associated with a HELOC, but once you’re approved, you won’t have to jump through hoops to access your equity. It will be available whenever you need it.

So—is a home equity line of credit right for you?

You may want to make home improvements, fund a college education or pay down debt. Whichever your situation, a HELOC can offer flexibility and easy access to cash when you need it, and at an affordable rate.

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