Find Today’s Lowest HELOC Mortgage Rates
Whether you’re looking for some extra cash to cover renovations or repairs, or consolidate high-interest debt, it makes sense to take advantage of the equity in your most valuable asset. A HELOC is a popular option for obtaining extra funds and has many benefits over a more traditional loan or refinance.
A HELOC allows you to take out cash against the equity in your property. Because the loan is secured by the home itself – known as a secured line of credit – and, therefore, considered low-risk in the eyes of lenders, the interest rate tends to be lower than other types of loans. This means you’ll make smaller payments and face a lower cost of borrowing over time.
With a HELOC, you can access money when you need it, so you never have to pay for funds you’re not using. With a traditional loan, on the other hand, you receive a fixed amount of money in one lump sum, which must be paid back over an agreed term, and interest rates tend to be higher.
A HELOC also provides access to a large sum of money – particularly if you have a lot of equity built up in your home – without affecting your existing mortgage. A HELOC allows you to maintain your existing mortgage and simply take out a loan using the home’s equity as collateral. With a mortgage refinance, you’re essentially applying for a new mortgage and are, therefore, required to pay the associated fees, which can add up. You may also be faced with higher interest rates and additional changes to the term of your original mortgage agreement.
Calculating a Home Equity Line of Credit (HELOC)
A HELOC enables you to access up to a maximum of 65% of the value of your home. But, it’s also important to note that your mortgage balance plus your HELOC amount combined must not add up to more than 80% of your home’s total value.
Home Value: $400,000
Mortgage Balance: $200,000
Maximum Loan to Value (LTV): $400,000 x 80% = $320,000
Maximum HELOC Amount: $320,000 – $200,000 = $120,000
$120,000 ÷ $400,000 = 30% of home’s value can be accessed
What are the minimum and maximum amounts?
Minimum amounts that you can access through a HELOC vary from lender to lender – anywhere from no minimum amount up to a minimum of $50,000.
Maximum amounts are standard across the board. You can access up to a maximum of 65% of the value of your home. But, it’s also important to note that your mortgage balance plus your HELOC amount combined must not add up to more than 80% of your home’s total value.
Not all lenders offer HELOCs.
What’s a revolving balance?
Having a revolving balance – such as is the case with a HELOC – means that you can access up to the full amount of available credit at any time. And as soon as you make a payment, that money is available to use once again. You never have to reapply to access your funds.
What are sub-accounts?
Some lenders allow you to divide your HELOC into multiple sub-accounts. This can prove quite beneficial if, for instance, you wish to use home equity to invest in the stock market. In this case, the interest you pay on borrowed money is tax deductible. This separate account would, therefore, make it easier for you to track the money specifically used for investment purposes.
Can I convert to fixed?
Some lenders allow you to convert a portion of your outstanding borrowed HELOC funds into a fixed-rate mortgage, which you’d then pay like a standard mortgage.
What’s a second position HELOC?
This terminology is used when you have a mortgage with one lender and a HELOC through another lender. Your mortgage will often appear in first position, with the HELOC following suit in second position. Second position HELOCs typically have higher interest rates than standard mortgages because they’re often held in second position behind an existing mortgage. This makes HELOCs riskier since, if you default on your mortgage, the lender in first position takes priority in getting paid to recuperate the outstanding loan amount.