A HELOC, or home equity line of credit, is a revolving line of credit like a credit card that is secured by the equity in your home. Most HELOCs have variable interest rates, similar to an adjustable-rate mortgage. HELOC rates will typically fluctuate through the life of the loan. With a HELOC, a borrower is approved for a specific amount of credit, for which they have a certain term to use. You can borrow as much of the line as you need when you need it.
As we mentioned above, HELOC rates are variable, rather than fixed. The variable rate is based on a public index, such as the prime rate, which is published in several major newspapers. Because the rate is variable, the interest paid on a home equity line of credit will change with changes in the value of the index. This means your monthly payment will change based on the current interest rate and the amount outstanding. Most lenders will quote the interest rate as the prime rate plus a margin of a certain number of points.
Shopping for a HELOC
When shopping for a home equity line of credit, check and compare the rates and terms between lenders, including your local credit union. Ask the lender which index is used and how much and how often it can change. Also, check the margin. As mentioned above, the margin is an amount added to the index that determines the actual rate you are charged. Confirm with the lender the periodic cap, which is the limit on how much the interest rate can change at any one time, as well as the lifetime cap, which is the limit on how much the interest rate can change throughout the life of the loan. Other important HELOC comparison points include and costs and fees. Similar to a mortgage, home equity loans, and home equity lines of credit come with fees and closing costs. This might include an application fee, title search, appraisal, early termination fee, and other fees.
Ultimate HELOC at Benchmark Federal Credit Union
Benchmark FCUs Ultimate HELOC features a low introductory 6-month rate of only 3.99% APR*. At the end of the introductory rate period, the rate reverts to the rate according to your credit score at the time of the application. This will be related to the prime rate as we mentioned above. Benchmark FCU uses the Wall Street Journal Prime Rate -.51% for 80% Loan to Value (LTV) and Wall Street Journal Prime Rate -.26% for 81-90% LTV. Unlike large national banks or other larger financial institutions, Benchmark FCU’s loan decision-making and processing are all completed locally. This means a borrower receives fast and friendly service from start to finish.
Benchmark also provides borrowers with two payment options for their Ultimate HELOC – traditional (principal and interest) or interest only. The traditional payment option provides borrowers with a ten year revolving draw period. As the principal is repaid, more becomes available for use. After the 10 year draw period ends, the line of credit reverts to a 15-year repayment term. For the interest-only option, borrowers pay only the interest due monthly during the 5 year draw period, with a $50 minimum payment. This is ideal for borrowers looking to make the lowest possible monthly payment during the 5-year draw. The drawback is because you are not making any principal payments, you can’t draw more on the line as you make payments once you’ve hit your limit. After the 5 year draw period ends, the line of credit reverts to a 15-year principal and interest repayment term.
HELOCs are a low-interest and convenient way to fund many things. This might include home improvements, college tuition costs, large expenses, or even debt consolidation. The big benefit is that you draw on and pay interest on only what you need. Click to learn more about Benchmark FCUs Ultimate HELOC.
Learn more in our blog “How does a HELOC work?”
*APR = Annual Percentage Rate. Rates are for qualified borrowers and are subject to change without notice. Introductory rate of 3.99% APR is for the first 6 months. At the end of the introductory term, the rate reverts to rate according to credit score at time of application: as low as Wall Street Journal Prime Rate – .51% for 80% LTV** and Wall Street Journal Prime Rate – .26% for 81-90% LTV**. Floor rate is 3.99% APR. $100 application fee for loans under $25,000. Early termination fee of $250 if HELOC is paid off & closed in the first 12 months.
**LTV = Loan to Value