Home Equity Line of Credit Rate – What is it and Why is it Important?
Knowing the Home Equity Line of Credit Rate is important when considering a line of credit. The rate will determine a number of factors of the loan and each one will affect you in both the short term as well as long term. With a little education, you can choose the right loan for your needs.
Also called a HELOC, this unique type of loan is best suited for those who have established a sufficient amount of equity in their home. Equity is the amount of worth that the property has accumulated since the beginning of the loan. In addition, this tends to be a popular loan when the economy is good and the housing market is stable and doing well.
When one borrows money from a lender, a transaction is made and it is considered a loan. The lender requires a percentage of the amount that is lent to be paid in addition to the repayment of the actual amount borrowed as well. This rate can vary and of course the lower it is, the better.
A Home Equity Line of Credit Rate
A Home Equity Line of Credit Rate can and will fluctuate over time based on the current economy. In addition, it is best to opt for a fixed rate compared to a variable rate. A fixed rate means that the percentage being added to the total remains the same during the course of the loan. A variable rate means that the percentage can (and probably will) go up and down according to the Prime Rate throughout the course of the loan.
The terms of a HELOC can vary so it is best to shop around. Didn’t think about doing this? It is actually a good idea as not only will you learn more because each lender will provide different information but you may find other options that you didn’t previously consider.
If you are new to the market, consider your payment options and how you can access the funds once approved. Inquire from the lender how flexible the line of credit is and if there are any discounts available (such as if you are already a member with that lending institution). You may want to consult with your tax preparer to see if the interest you pay is tax deductible.
Something else to consider is the draw period (the time you are able to withdraw/use the funds) and also the length of the loan. The time frame can depend on the amount being borrowed and can also vary between lending institutions. Some lenders may discount the application fees or offer zero closing costs. Remember that all fees that are included in the amount borrowed will have the Home Equity Line of Credit Rate attached to it.
All fees and rates do add up even when the amount being borrowed may not seem to be that much. Consider your current and possible future income, ask questions from several lenders and consider your options. To summarize, a Home Equity Line of Credit Rate is the percentage that you must pay above and beyond that actual amount borrowed.