Home equity interest rates (HELOC) on loans with a 10-year repayment period remained steady at 3.99% this week, but for loans with a 20-year repayment period, interest rates fell to 5.81%, the lowest since at least January. , according to Bankrate latest rates for the week ended March 28. Of course, the rates you could qualify for can be significantly higher or lower (see the lowest rates you can qualify for here).

HELOCs: Understanding the Pros and Cons of Home Equity Lines of Credit

HELOCs are designed to provide homeowners with access to cash based on the equity they have in their home. This line of credit can be used as needed, which can be beneficial for someone taking on a project, e.g. B. a home improvement project where he is not sure how much money he might need.

Because you’re using your home as collateral when applying for a HELOC, interest rates are often advantageous, while unsecured loans or those that don’t require collateral tend to have higher interest rates. Another benefit of taking out a HELOC is that it’s versatile — many people use the funds for home improvement projects, consolidating debt, and covering unexpected expenses, and you take the money as needed.

But they also come with great risks: Should you default on a HELOC, you could lose your home since your home is the collateral for the loan. And it’s important to understand that HELOCs differ from many other types of loans because their repayment terms vary and they often come with variable interest rates, so a borrower’s payment can fluctuate over time. (Fixed rate helocs exist, but they’re just rarer.)

Here’s how repayment usually works: HELOCs are divided into two periods. The first is the drawing period, often 10 years, during which a borrower can withdraw money from their line of credit while typically only paying interest. The second is the repayment period, which is typically 20 years, a period when the borrower is no longer able to draw on their line of credit and is instead responsible for paying back the principal in addition to the interest.

Tips for acquiring a HELOC

Just because you have some equity in your home doesn’t mean you can expect to get a huge line of credit if you take out a HELOC. Most lenders want borrowers to keep a 20% interest in their home. So if the amount of money you need to borrow exceeds that value, consider an alternative. Still, HELOCs are sought after to cover projects and expenses that don’t have an all-inclusive price because no matter how much a lender offers a borrower, the borrower doesn’t have to assume all the money.

Pros recommend getting quotes from a few lenders to ensure you’re getting the best rates and terms on a HELOC. Something else professionals recommend: Check with the lender about any discounts you may be eligible for.