5 Tips for Getting the Best HELOC Rate This Year
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Home equity lines of credit (HELOCs) let you leverage the equity you’ve built in your home to borrow money. While secured by your home, HELOCs work more like credit cards, allowing you to borrow money as you need it and repay as you can.
HELOC rates are typically much lower than the rate you’d get on a credit card, but there’s still a lot you can do to improve the rate you are offered on your HELOC to make your borrowing as affordable as possible.
Keep reading as we explore some specific things you can do to ensure you get the best HELOC rate possible. Click below to navigate the contents of this article more easily.
Smart Moves: Getting the Best Rate Out of Your Home
Your home can be your best friend when borrowing money for major expenses like a college education, house renovations, or debt consolidation. No matter how much equity you have in your home, the interest rate you will receive on a HELOC will have more to do with your financial situation and creditworthiness.
Below we consider some great ways to improve your creditworthiness, so you can make the most of your equity with the best HELOC rate. First, however, let’s break down how a HELOC works.
How Does a HELOC Work?
A HELOC allows you to borrow money from a credit union or bank by using the stake you already own in your home, or your equity, as collateral. The bigger the stake, the more money you are likely to be able to borrow.
Unlike personal or home equity loans, a HELOC is a form of revolving credit. That means you do not receive the amount you borrow as a single lump sum but rather a credit limit that you can borrow against as needed.
Once approved, you can borrow money and repay only the interest charged. The interest rate you are charged is based on your lender’s assessment of how likely you are to repay the money you have borrowed on time.
The way you organize and manage your finances has a significant bearing on this assessment, and thus how affordable your HELOC actually is. Fortunately, there are clear steps you can take to improve your creditworthiness so you can earn a lower rate, saving you money on interest payments.
5 Ways to Improve Your HELOC Rate
Here are five smart ways you can improve your creditworthiness so you get the best HELOC rate possible.
1. Monitor (And Clean Up) Your Credit
You can only improve your credit if you know what it is. Monitoring your credit is the first step towards taking charge of your creditworthiness. Check your credit report regularly. You can download a free credit report once a year from each of the three major credit bureaus, or you can contact them individually.
Start by making sure there are no errors on your report, including misspelled names, inaccurate addresses, or “missed payments”. Keep your eyes out for credit accounts of any kind that you do not recall opening. Report these to the credit bureaus immediately. In some cases, you may need to contact merchants or banks that reported inaccurate information about you.
Once your credit report is up to date, you can improve your credit score by:
Ensuring all bills and account payments are made on time
Not taking on new debt
Paying down your credit card balances
2. Pay off existing debt if possible and improve your LTV ratio
Paying off any kind of debt will improve your credit score and make you more attractive to lenders. This might mean making some sacrifices, like creating and sticking to a strict monthly budget to free up cash to pay down loans. It might also help to consolidate multiple credit card balances onto a single card with a higher credit limit.
You can also improve your loan-to-value ratio by paying off more of your mortgage before you borrow against it with a HELOC. Your loan-to-value (LTV) ratio is the difference between the amount you owe on your property and the market value of your home.
For example, if your home is worth $400,000 and you owe $200,000, your LTV ratio is 50%. If you owe $100,000, it is 25%. The lower your LTV ratio on your home, the more confident lenders will be about lending you money, and the lower the rates they will charge.
Most mortgages allow you to pay more on monthly payments if you can, or to make lump sum payments to lower your mortgage balance.
3. Understand Your HELOC Loan Terms
It’s important to understand how HELOC payments actually work to assess the rate you are being offered.
During the initial draw period, you are offered a lower interest rate and are usually able to make interest-only repayments on this balance. However, if you fail to pay off your balance by the time this “draw” period ends (typically between three and 10 years) you will need to repay your balance just like a regular loan, but at a higher, and still usually variable interest rate.
It’s important to be realistic about how likely you are to repay your line of credit balance before it resets. While the prospect of interest-only payments can be tempting, be sure to estimate how much you can safely borrow at a given interest rate.
4. Work With HELOC Lenders You Know and Trust
When you’re looking to take out a HELOC, it’s a good idea to start with lenders you know to be trustworthy. Credit unions and banks are generally the most reliable places to get a HELOC, but there are important differences.
Commercial banks are looking to make a profit on every transaction, so their rates are generally higher than credit unions. Credit unions, on the other hand, are not-for-profit financial co-operatives. Without the need to deliver dividends to outside shareholders, credit unions can offer better rates and lower fees to their members.
In addition to more competitive rates, credit unions like Listerhill are also looking to build long-term relationships that help their members succeed over time. They are more likely to look at your full financial situation when offering you a loan and may be able to offer more flexible terms.
Finally, many mortgage lenders offer a better deal on HELOCs if you have a home loan with them. Credit unions in particular are good about offering discounts to members who already have a banking relationship.
5. Shop around
That said, it’s important to shop around, at least to get an idea of the rates you might be offered elsewhere. Are these lower than your existing bank or credit union?
As a rule of thumb, it’s wise to get quotes from about four lenders to be sure you have a good idea of the options. It’s worth talking to other credit unions and banks, as well as online lenders, to put yourself in a stronger negotiation position with your existing home loan lender.
How to Get the Best HELOC Rates in the South
If you’re looking for the best HELOC rates in Alabama, Georgia, Florida, and Mississippi, then you are in luck. Listerhill Credit Union has been helping residents of our four-state service area get more out of their homes since our founding.
We offer:
The lowest possible HELOC rates
Flexible terms, including our 10-year draw, 10-year repayment HELOC
Convenient repayment options, including online, by phone, or in person
No annual fee
And, with a minimum credit advance of $10,000, you get a large lump sum advance with the same flexible repayment terms of any other HELOC, allowing you to borrow more for home improvements, a new pool, or a memorable family trip. You also get easy access to your available credit with your own HELOC checks.
The interest on the money you borrow using a Listerhill HELOC may be tax-deductible when used to renovate or upgrade your home or second residence. Consult with your tax advisor to find out more.
Find a Low-Rate HELOC Today!
Ready to tap your hard-earned home equity with the best HELOC rates from Augusta to Baton Rouge? At Listerhill Credit Union, we’ve got you covered. Get started now by checking out our competitive rates.
