HELOC rates have fallen. Here’s what to know before releasing one

The latest HELOC tariffs

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Home equity line of credit (HELOC) rates for loans with a 10-year repayment schedule are back to where they were two weeks ago at 5.49%, after a brief increase to 5.51% last week, according to Bankrate data for the week ending July 18 20-year HELOC rates rose to 7.43%, from 7.46% the previous week, and 30-year HELOCs fell to 6 .17% against 6.43% the previous week. (See the lowest fares you can get here.)

HELOCs are popular because they are one of the most affordable types of loans for homeowners with significant equity in their home; rates are usually significantly lower than personal loans or credit cards. And experts say HELOCs can be a good option for those looking to consolidate high-interest debt or finance home improvement projects. But it’s important to remember that if you don’t pay off a HELOC, you could lose your home.

What you need to know about a HELOC

HELOCs are based on the amount of equity a person has in their home, so the amount of money a borrower is eligible for varies. And their structure differs from many other loans: in fact, they are made up of a two-part structure: generally a 10-year drawdown period and a 20-year repayment period which together amount to a 30 years. During the drawdown period, a borrower can withdraw as much or as little as they want, in small installments or in a lump sum. However, once the repayment period begins, the money cannot be withdrawn and the borrower must repay the principal plus interest.

Get the best rate on a HELOC

To get the best rate on a HELOC, you’ll want to have substantial equity in your home, a higher credit score (760 and above is a good goal), and a debt-to-income ratio (DTI) inferior. To calculate your DTI, add up your monthly bills, including your house payment, credit card, child support, insurance, other debts, etc. and divide the total by your gross monthly income. The number lenders look for is usually 36% or lower to not only ensure you get approved, but also to help you get the best rates and terms on a HELOC. You will also want to shop around for a HELOC as rates and terms vary.

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