A home equity line of credit is a loan system that works identical to a credit card. It is a great option that helps you gain substantial cash for your home renovation or any other significant purchase. However, just like other loans, this line of credit also has complicated features and diverse interest rates. It’s similar to a credit card as it is revolving and the interest rates vary depending on the market. For this reason, before you put your hands into a home equity line of credit, make sure you know what you’re dealing with.
A home equity line of credit can help you get better home equity and make your house more attractive to sellers. All you need to do is make sure the payments are made on time and the loan is weaned off properly. Here is what you need to know about landing a good HELOC proposal for a lender:
Know Your Home Equity
Home equity is a great asset that not many people know how to use to get approved for better loans. Having good enough equity can also help you get lower interest rates on your home equity line of credit.
Lenders can determine the quality of equity against your home as they calculate the loans on the house to its value ratio. You can calculate this value yourself with an online CLTV calculator or simply ask the lender.
The amount that comes up will determine the interest rates that you have to pay and the quality of the loan you can get.
Apprehend the Initial HELOC rate
When you first get approved for a HELOC, there is an introductory period during which different lenders may give excellent rates. These low rates are suitable for the first year as you adjust to the loan and spend some time paying it down successfully.
However, after this period ends, your lender may start increasing the rates to a relatively higher degree that becomes difficult to deal with. Be sure to ask your lender what the rates will be in the long term after the introductory period so you can be prepared for it.
Look for Balloon Payments
The balloon payment is a lump sum term that comes at the end of the repayment period where you end to. This ordeal may seem reasonable for some people who are waiting to get rid of the credit in one payment. But for others, it may have difficulty gathering this big amount of money.
However, there’s a way to evade this situation. You can always discuss the terms of this big payment with your lender and inquire about better ways to deal with it. Consult your lender before the balloon payment comes so that you have time to prepare for it.
Take Account of the fees
Never settle for a low rate home equity line of credit that looks too good to be true. Make sure to survey the fine print and all the hidden costs well before agreeing to anything. These hidden fees may be there and they get rid of any benefits you receive with a low rate HELOC. For this reason, only trust alender that gives out all the information on extra charges that can apply to different situations.
These charges can include annual fees, third-party fees, inactivity fees, prepayment penalties, and so on. Beware of HELOC advertisements that give off low interest rates, because they might come with these extra charges outside of the standard fee. This way, you won’t really get any advantage from your lender.
Get Shorter Periods
Another way of acquiring lower interest rates and faster payments to get rid of the loan is by getting shorter terms for repayment and draw periods. For this, ask your lender for a shorter duration and compare them with the rest to see what really fits your budget and home equity plan.