How to Shop for a HELOC (Home Equity Line of Credit)

Using a HELOC can be a great way to access the equity in your home. When you are considering using this type of loan product, there are several things that you will need to look for. Here are the basics of how to shop for a HELOC successfully.

Look at a Variety of Lenders

When shopping for a HELOC, you should not limit yourself to a small number of lenders. You want to work with several different lenders throughout this process so that you can ensure that you will get the best deal possible. You should start out by checking with several lenders in your local area. In addition to this, you should get online and look at the many lending options that you have there. By doing this, you will be able to locate the best deals and even negotiate a bit between the lenders.

Interest Rate

In order to secure a home-equity line of credit, you will most likely have to pay a higher interest rate than you would with a home-equity loan. Because you are paying a higher interest rate, it is important that you find the best interest rate in the market. The interest rate on your HELOC is going to affect how much money you have to pay over the life of the loan. It will also impact what your monthly payment is when a repayment period begins.

When looking at the interest rate on the HELOC, you also need to determine what type of interest rate it is. For example, many home-equity lines of credit have an introductory interest rate with them. You might get a certain interest rate for the first year of the loan, and then the rate changes after that. You need to know how long the introductory rate is good for and what that rate is. You also need to understand how the interest rate will change after the introductory rate is over. You might be dealing with an adjustable-rate or it could be a higher fixed rate.

Draw Period and Repayment Period

When looking at different home-equity lines of credit, you need to make sure that you understand how the different periods of the loan work. The initial period of the loan will be known as the draw period. This is when you can take money out of the line of credit. In many cases, this part of the line of credit will last for approximately 10 years. After that, the repayment period will go into effect. You will have another certain amount time in which you have to repay the money that you borrowed. They will calculate a monthly payment for you and give you time to pay it off.

Minimum Distributions

Many home-equity lines of credit also have minimum distributions for you to consider. For example, you might have to take out a certain amount of money when you open the line of credit. You might also have to take a minimum amount of money whenever you take a distribution.

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