HELOC Shopping Tips & Questions
When you’re in the market for a home equity line of credit (HELOC), you may find all of the choices out there a bit confusing. You want to get the best deal on your HELOC, but where and how do you get started? We’re going to give you a few tips for finding the best deal and also questions to ask of your lender so you can fairly compare all of your offers.
Our first big tip is to shop around for the best deal. Don’t take the first offer you see or get drawn in by a low teaser introductory rate on a HELOC. That low, low rate that caught your attention may not last long. You’ll want to check out various lenders, including your local credit union. You’re not only looking to find the best rate but the best overall deal. The process may take a bit of time but finding a great deal will be worth it in the long run.
Our second tip before starting your search is to know the equity you have built in your home. What is the current value of your home? Take that number and subtract what you owe on it. This includes your mortgage and any other liens. Many lenders will want you to have at least 20 percent equity remaining in your home after taking a home equity loan. They may lend 80 percent of the total equity. Other lenders may be willing to let a bit more or a bit less. Knowing your equity will help you understand the process.
Our final tip is to ask questions of your potential lenders. Don’t be afraid to ask and then ask some more. Visit lender websites, including Choice One to get started.
You want to completely understand all of the details involved in the HELOC and the costs, rates, rules, etc. The questions below will help you know what to ask of your potential lenders.
7 Questions to Ask to Get the Best HELOC
- How long does that special introductory rate last? If you have seen a special introductory HELOC rate advertised, you’ll want to know exactly how long that special rate period lasts. If a rate sounds too good to be true, it probably is. That special rate may only last for a very limited time. You want to know upfront when the rate “honeymoon period” will end.
- What is the current rate and is there a rate cap? The interest rate on a HELOC is typically adjustable. This means it can change over the life of the loan. Ask about the specifics on the rate and how it can change, as well as if there is any cap on how high the rate can actually go. Has the lender put a limit on the rate? This should be a big consideration in your decision-making process.
- How long is the draw period? Most HELOCs have a draw period. This is the amount of time you have to actually draw funds on your line as needed. It could be 5 years or ten years for example. That’s usually followed by a repayment period. You want to have all of the specifics for best lender comparison.
- What are all of the fees and costs involved in the HELOC? This includes all lender fees, annual fee, closing costs, etc., as well as any third-party fees. You also want to know about any “hidden fees,” such as inactivity penalties. There may even be penalties relating to minimum draws, prepayments or early termination. Ask your potential HELOC lender for details pertaining to ALL fees.
- Is there an initial minimum draw? Some lenders may require you to make an initial minimum draw of a certain amount on the line. This may be required whether or not you need the funds, so you’ll want to know.
- What are the HELOC advance and repayment terms? Is it interest only payments during the draw period? Get all the specifics.
- Does the lender require a balloon payment? A balloon payment may be required at the end of the loan. You will need to know to prepare. A surprise like this can really hurt you financially. This is an important question.
- What specific information will I need to apply for a HELOC? This will include things such as employment information, personal information, and financial information. It will also include information pertaining to your home value.
Applying for a HELOC
When you’ve eventually decided on the best lender for your HELOC needs, it will be time to apply for the loan. Be prepared with all of the necessary information required by the lender. If you decide that Choice One Community Credit Union is your HELOC of choice, you can apply right online.