What’s the best way to take advantage of falling interest rates? A home equity line of credit, or HELOC, offers more advantages than any other form of borrowing. Tropical Financial Credit Union offers better terms on it and its home equity loans.
It’s worth repeating that you can slash the interest you pay on a personal loan or credit card by consolidating those debts into a HELOC. Personal loan rates range from a low of 10.73% for people with the highest credit score to a whopping 32% for those with the worst, according to a Bankrate report.
Credit card rates hover just above 20% nationally, Bankrate says. The nation’s leading retailers charge upwards of 20%, and two charge 33.99% on their branded cards.
In contrast, the average HELOC rate was just 8.69% in mid-October, according to Bankrate.
Imagine how much you would save if you could cut your borrowing rate by two-thirds or even half. And how much easier would it be if you could make one payment instead of sending money to three, four, or more different creditors?
What exactly is a HELOC? It’s a revolving line of credit like a credit card with its variable interest rate, but much lower. One big difference is that the equity in your home secures the debt. Florida homeowners have experienced huge increases in their home’s market value, making significant sums available for borrowing.
Depending on the lender, you can borrow for a set number of months or years, during which you make payments that are applied to the principal and interest on the outstanding balance. After the 10-year draw period ends, you continue to make principal and interest payments for a set number of months, just as you would with an auto or personal loan.
Besides having a much lower interest rate, a HELOC offers these advantages:
A higher borrowing limit. A credit card issuer or other lender will extend credit up to a set limit, such as $25,000 or, for wealthy, top-credit individuals, $50,000. Many lenders let you borrow up to 80% of your home's equity, which could be hundreds of thousands of dollars depending on your home value.
More flexibility on borrowing. Personal loans often have terms of 2-5 years and provide the money one time in a lump sum. A HELOC typically has a draw period – the time in which you can borrow money – of 10 years. You can take out money several times during that decade. You can use your line of credit at any time, but know that you will hit your credit limit sooner than with a HELOC.
More flexibility on repayment. Your first personal loan payment is due the first month after you receive the funds. Credit card issuers demand a minimum payment each cycle of about 30 days. With a HELOC, you have a similar billing cycle with payments and can make principal only payments to pay it down quicker.
Lower monthly payments. This can be a plus or a minus, depending on how much you borrow, the rate, and how quickly you pay off the balance. A Tropical Financial loan officer can walk you through the math. Because you are stretching the HELOC payments over a very long time, You may pay more interest than you would on a personal loan. On the other hand, low HELOC rates make it more likely that you will come out ahead.
