Are you considering getting a home equity line of credit, aka HELOC in 2020? If so, keep reading because we’re sharing some tips on how you can unlock the equity in your home at a low rate.
Whether you’re making home improvements, financing a life event, or consolidating debt, you want to secure the lowest interest rate possible to help you save on the amount you borrow. Here’s how to get the best HELOC rate in 2020.
Keep Up Your Credit Score
As with any time you borrow money, your credit score will have a significant impact on your ability to qualify and the rate you get. To score the best HELOC rate, you want to make sure your score is as high as possible.
Look at your credit report and see if there’s anything you can do to boost your score. This might include paying off debt, getting inaccuracies removed from your report, or putting a hold on applying for other credit cards or loans.
Check out the lender you’re considering in advance to see if there are any minimum credit score requirements. Some lenders require that you have a minimum credit score before getting approved, while others are more flexible.
Also, you might be able to find a rate chart outlining starting interest rates based on your credit score. This resource is beneficial in helping you to understand how your credit score impacts your HELOC rate overall.
Decrease Your Debt-To-Income Ratio
Along with reviewing your credit score, lenders will consider your debt to income ratio when making an approval decision and determining your interest rate. So, if you want the best HELOC rate in 2020, you should decrease your debt to income ratio.
Your debt to income ratio evaluates your outgoing expenses versus your income to determine how much of your income is paid out to finance your expenses.
If you have a high debt to income ratio, it will signal to lenders that you’re a high-risk borrower, which might lead to an application denial or higher interest rates. However, if you have a lower debt to income ratio, lenders will see that you have the financial flexibility to afford to take on new debt and will likely offer you a lower interest rate in return.
Ideally, your debt to income ratio will be under 30%. If you find it to be higher than that, do what you can to either increase your income, decrease your debt, or both.
Shop Around For The Best HELOC Rate
If you want to find the best HELOC rate, you have to do your research and shop around. While rates might be similar with different lenders, every quarter-point, half-point, or whole point can save or cost you hundreds or thousands of dollars depending on how much you borrow.
You should submit an application with multiple lenders during this research phase. As long as you do so within a short period, often less than 45 days, all of your applications will count as one hard hit on your credit. This reduces the negative impact applying for credit has on your credit score. By applying to multiple lenders, you can compare their terms and select the best offer available to you.
When applying, be sure to check with your local credit union. As a nonprofit organization, credit unions often offer their members the lowest interest rates and fees on their loans. The reduction in interest rates and associated costs can save you a significant amount during the period in which your credit line is open.
Thoroughly Research All Interest Rate Details
To find the best HELOC rate offer, you want to research all interest and fee details associated with this line of credit.
Many HELOCs have introductory rate offers that only last for a set period before another rate kicks in. Be sure that you are aware of what the interest rate will be after the introductory period expires, along with how long the initial period is.
Also, find out if there are any caps on your interest rate. The rate cap is the max that your interest rate can reach. These can include lifetime caps and periodic caps.
Some HELOCs will have a variable interest rate, which fluctuates with the market, so keep in mind that your rate might change during the time you have your line of credit open. However, that’s why knowing your cap is essential.
Along with knowing details about the interest rate, be sure to research any fees related to taking out your HELOC, which can have an impact on how much you pay in all to borrow the money.
Locating The Best HELOC Rate In 2020
As long as you’re willing to do a little leg work to boost your credit, lower your debt to income ratio, and research a great lender for you, you can find the best HELOC rate this year.
At Belco Community Credit Union, we offer flexibility with our myLOC Home Equity Loan, which can operate as a traditional line of credit, or you can choose to lock in a segment of your line for a set term and rate.
We want you to get as much money as you need, that’s why we allow you to borrow up to 90% of the appraised value of your home. You get a 10-year draw period and a 10-year repayment period, and you only need to pay the accumulated interest each month when using it as a traditional line of credit. Plus, with no application fee, we make applying as easy as 1-2-3.