A HELOC remains popular in 2021 because it gives borrowers plenty of freedom as it functions like a credit card and has a variable interest rate that some borrowers may find attractive. It allows people to access a credit line that is tied to their home equity as needed and pay it back according to the terms of the loan.
How Does A HELOC Work?
The limit for a HELOC is based on the homeowner’s home equity. Once approved for a HELOC, the homeowner can draw money from it as needed within the draw period which typically lasts a few years. After the draw period expires, the repayment period begins and can last for up to 20 years. During this time, you will need to pay all outstanding balance as well as interest. It is possible to renew the credit line at this time.
What Determines a HELOC’s Rate?
HELOC rates are based on a benchmark interest rate. It goes up or down with the prime rate. Payments for the loan are based on how much money was borrowed from the HELOC as well as the current rate for each payment period. Know too that you may be able to negotiate a fixed rate with your lender.
How Can You Get A Good HELOC Rate?
Your HELOC rate will be determined by your credit score and your lender. A good credit score means that you are likely to get a lower HELOC rate of around 3-5% but a below-average credit score can mean that your HELOC rate will be around 9-10%. Since the average HELOC rate as of December 2020 is around 4-5%, any rate lower than this can be considered as a great HELOC rate.
Who Is Most Appropriate to Get A HELOC?
A HELOC is best for you if you have a recurring need for extra funds for the next few years and if you are comfortable with using your home equity as collateral for a loan. Since a HELOC will give you access to funds for several years, it is best to also spend it on some home improvement projects that will increase your home equity for years to come.
How to Qualify for A HELOC During COVID-19 Pandemic?
Your income, credit history, credit score, and other debts all factor in when you apply for a HELOC. Just note that banks might be overwhelmed due to the number of applications and their current working hours. With this said, now might be a good time to apply for a HELOC as interest rates are low and banks and lenders are still accepting HELOC applications. If you are worried about paying off your HELOC in the future, make sure to communicate concerns with your chosen lender so any questions that you have can be addressed as early as possible.
Get A HELOC in 2021
If you’re a homeowner and looking for a way to fund home improvements, medical expenses, education costs or tuition, important large purchases, debt consolidation, and more, consider applying for a HELOC now. Contact us if you want to qualify for a HELOC soon.