When finding lenders with the best HELOC rates, you have to look into how competitive they are, and also, if they will allow you to borrow the amount of money more than what unsecured personal loans or credit cards can lend you.
When tapping into your home’s equity, a home equity line of credit (HELOC) could be a very huge help.
Generally, HELOCs are flexible, which means, it allows you to borrow the amount of money you need, up to your credit limit. A HELOC is quite similar to that of a credit card. However, what makes the difference is that it is secured by the equity in your home.
HELOC is not new. It has actually been there for quite some time now. In fact, according to the U.S. Census Bureau, homeowners have used “home equity lines of credit (HELOCs) to access cash at relatively low-interest rates with certain tax advantages” since the mid-1980s.
HELOC can be used for different purposes, which is one of the reasons why people, particularly homeowners are drawn to this financial service.
Meanwhile, in an article published by CNBC, it says that according to ATTOM Data Solutions, “there were 313,744 HELOCs originated in the third quarter of 2018,” which reflects an 11 percent decline from the year prior to that.
The decline, however, does not mean HELOC is no longer significant. In the same article, it says that the rising interest rates were the probable culprit for the decline in number.
Nevertheless, given the fact that HELOCs have adjustable rates, sooner or later, it will surely bounce back. Needless to say, with competition around, a lot of homeowners will surely benefit from getting HELOC.
So, having said that, we are going to share with you some of the best HELOC lenders of 2020. We specifically compiled this list to help you compare the best HELOC rates, and eventually, decide on which company or lender to get HELOC from.
But first —
WHAT IS HELOC?
We have already mentioned a few important notes about home equity lines of credit or HELOC, but, we thought as a consumer, it is important that you fully understand the product before you even get one for yourself.
According to Devt.org, America’s Debt Help Organization, “a HELOC amounts to an open checkbook for people with equity in their home.” It “resembles a second mortgage but functions like a credit card.”
Furthermore, “HELOC funds can be drawn when you need the money instead of taken in a lump sum, as is common with second mortgages, which also are called home equity loans.”
Basically, if a homeowner needs money to cover expenses, HELOC is one of the ways to get some extra funds.
HELOC funds can be used for different purposes such as but not limited to remodeling your home, paying for college fees, your child’s wedding, or you can even use it to fund your vacations. Basically, you can use it for anything you need money for.
HELOC is very accessible. You can use it for anything, provided you do not exceed the credit limit.
Now, there are a few people who confuse HELOCs with mortgage loans. Here’s the thing — these two are totally different from one another.
Just to clear confusion, Debt.org refers to mortgage as a fund that is used for one particular purpose, which is funding a home. Unlike HELOC, you don’t get to see the money as it is conveyed directly to the seller. Also, for the most part, you stick to a repayment schedule, which usually lasts for 15 up to 30 years.
Meanwhile, HELOCs are revolving funds that you can use your home as collateral if you fail to pay for the amount borrowed. Unlike mortgages, you can use HELOC funds for anything.
WHAT ARE THE PROS AND CONS OF HELOC?
Before we move on with our list of best HELOC rates, allow us to share with you first the pros and cons of HELOCs. This is so you know what to expect from this kind of product, and also, for you to be able to assess whether this will work for you or not.
So, here are some of the pros and cons we found on HELOCs:
- It’s flexible — you can basically use the funds for any purpose.
- The cost is lower as compared to many other types of loans out there.
- You are able to borrow the amount you need up to the credit limit set.
- There are potential tax breaks if you use the money to renovate your home, to increase its value.
- You use your home as collateral in case of default.
- It tends to have a few closing costs and features variable interest rates.
WHERE TO FIND THE BEST HELOC RATES?
Now, you know already what HELOC is, as well as its pros and cons. So, this time around, we’re going to share with you some of the lenders that offer the best HELOC rates.
Before moving on, here’s an informative video on the best ways to get the lowest HELOC rate from The Smart Investor:
So, let’s proceed with our list of lenders with the best HELOC rates.
For a quick glance, you may take a look at the table below (Note: Companies are listed alphabetically.):
|LENDERS||HELOC AMOUNTS||ANNUAL FEES||APR RANGE||DRAW PERIOD||REPAYMENT PERIOD|
|Bank of America||$25,000 to $1 million||$0||3.77%-Unspecified||10 years||20 years|
|Bank of the West||Up to $2 million||Up to $75||Unspecified, Fixed-rate||10 years||10-20 years|
|Citibank||$10,000 to $1 million||$50 (can be waived)||4.09%-6.99%||10 years||20 years|
|Connexus Credit Union||$5,000+||$0||3.49%||15 years||15 years|
|PenFed||$25,000 to $500,000||$99 (can be waived)||3.7%-18.00%||10 years||20 years|
|U.S. Bank||$15,000 to $750,000 ($1 million in California)||Up to $90 (can be waived)||3.25%-7.50%||10 years||20 years|
BANK OF AMERICA
The Bank of America Corporation or popularly known as Bank of America is a multinational investment bank. It is also a financial services company, and is currently headquartered in Charlotte. Its central hubs include New York, Dallas, Toronto, and Hong Kong.
When it comes to HELOCS, the Bank of America is known to offer one of the bests in the country.
Bank of America’s HELOCs does not charge any application fee, closing costs (on up to $1 million), an annual fee, which is very beneficial to the consumers. Apart from these, should you opt to convert a portion of your HELOC to a fixed-rate loan, you get to do that free of charge.
The bank only charges you for one thing — that is a prepayment penalty if in case you pay off your HELOC within three years. This amounts to $450 plus other fees and taxes.
But, if you come to think of it, it’s fair enough. After all, you do not have to worry about repayment penalties if you are a responsible borrower, right?
Anyway, apart from the good things we already mentioned, another thing that we like about Bank of America’s HELOC is that it offers a 0.25 percentage-point discount when you sign up for automatic payments. In addition, the bank offers other discounts that will greatly help lower your rate even more. These discounts include an initial withdrawal discount, as well as Preferred Rewards clients’ discount.
Bank of America’s HELOC amounts range from $25,000 to $1 million. It comes with a 20-year repayment term, with a 10-year draw period.
- It does not charge an application fee, closing costs, or annual fee on lines up to $1 million.
- Offers discounts for automatic payments, initial withdrawal, as well as discounts for Preferred Rewards clients.
- You need to be at a financial center when closing the account.
BANK OF THE WEST
Bank of the West is a subsidiary of BNP Paribas. It is a regional financial services company and is headquartered in San Francisco, California. As of this writing, Bank of the West has over 600 branches in the Midwest as well as in the Western United States.
Bank of the West also has one of the best HELOC rates. It offers up to $2 million lines of credit, which makes it ideal for those with large projects, or those with a high amount of debt to be consolidated, or other large expenses to be paid.
While it is not clear if there is an early repayment penalty, Bank of the West does not charge origination fees, as well as closing costs.
A little downside on Bank of the West is that they charge an annual fee that costs up to $75. Also, should you opt to convert from variable-rate to a fixed-rate and vice versa, you may be charged an additional $100 fee.
Bank of the West offers a 10-year draw period, while the repayment period is offered for 10, 15, or 20 years.
- The bank has a pretty high line of credit at $2 million.
- Does not charge origination fees or closing costs
- The bank charges an annual fee of up to $75.
- The annual fee cannot be waived.
- There is a fee when converting from variable-rate to a fixed rate, and vice versa.
- The possibility of being charged for early repayment.
Citibank also offers one of the best HELOC rates in the country today.
Citibank is referring to itself as “the global bank – an institution connecting millions of people across hundreds of countries and cities.” The company exists to help “protect people’s savings and help them make the purchases – from everyday transactions to buying a home – that improve the quality of their lives.“
Founded in 1812, Citibank has earned popularity and trust among consumers not just in the United States, but across the globe.
The bank is the consumer division of financial services multinational Citigroup.
Now, when it comes to the bank’s HELOC, Citi shines best in offering various discounts and savings for those who own other Citi accounts.
With Citibank’s HELOC, homeowners can borrow up to $1 million. The bank offers repayment options good for 20 years.
Just like the previous one, Citi also comes with an annual fee amounting to $50. However, this can be waived if you have certain accounts with Citi.
Citibank also allows you to choose whether to pay closing costs, which starts at $680. The thing is when you pay them they will get you another rate discount.
If you want to save more, all you need to do is sign up for an auto-pay feature. You will get another rate discount by signing up.
The only downside we see with Citi is that should you pay off the line of credit within 36 months, there is a possibility that you will incur an early closure fee.
- The bank offers various opportunities for rate discounts.
- The bank gives borrowers the freedom in terms of paying closing costs.
- An annual fee of $50 is waived for those who have certain accounts with Citi.
- An annual fee of $50 is charged for non-bank members.
- Requires a high minimum in personal assets for interest-only draw period.
CONNEXUS CREDIT UNION
As stated on their website, Connexus Credit Union is “a member-focused cooperative with over $2.62 billion in assets.” Currently, it is serving over 361,401 members across all 50 states.
Connexus Credit Union returns its profits to its member-owners through “high yields for checking accounts and deposit products, as well as competitive rates for personal, home, and auto loans.” Obviously, Connexus Credit Union also offers one of the best HELOCs, which is why we included them on our list.
Connexus offers a minimum loan amount of $5,000 under HELOC. So, if you are looking at doing small home improvement projects, this one’s ideal for you.
In addition, the company offers a 15-year draw period. This is longer as compared to the usual 10-year draw period offered by other financial institutions — including the ones on our list.
Connexus charges a closing cost, which starts at $175 and can be as high as $2,000.
Meanwhile, the company does not charge annual fees. With regards to early payoff penalty, we are not so sure about it as the company does not state it on their site.
As mentioned earlier, Connexus is a credit union. As a prerequisite, you have to be a member to be able to take advantage of its benefits. To join, you have to submit membership requirements. Furthermore, you can be a member by joining the Connexus Association through a one-time donation amounting to $5. Also, you need to deposit at least $5 into a savings account. That simple.
Once you are a member, you can now take advantage of Connexus products and services.
- Connexus offers a low minimum loan amount.
- No annual fees required.
- It offers a longer draw period than the usual draw period offered by other financial institutions.
- You need to be a member first so you get to enjoy their products and services.
- Connexus is not available in Maryland.
- There is a closing cost, which starts at $175 and can go as high as $2,000.
Of all the ones on our list, PenFed is probably the best overall.
Pentagon Federal Credit Union or popularly known as PenFed is a credit union in the United States that is headquartered in McLean, Virginia. It is chartered, as well as regulated under the authority of the National Credit Union Administration. It was established in 1935, and is currently “one of the country’s strongest and most stable financial institutions serving 1.9 million members worldwide with $25 billion in assets.”
PenFed serves its members from across all 50 states, as well as the District of Columbia, Guam, Puerto Rico, and Okinawa.
Although PenFed primarily serves military service members and their families, anyone can be a member as long as they become a member of any of PenFed’s affinity partners like Coast Guard Auxiliary Association (CGAuxA). Becoming a member comes with a small fee, and a requirement to open a PenFed account with a minimum of $5 deposit.
As with PenFed’s HELOC, borrowers are allowed to loan up to 90% combined loan to value (CLTV).
Unlike others, PenFed covers the closing costs provided that you do not pay off the HELOC within three years, or you need to repay them. In addition, you are not required to pay an annual fee of $99 if you pay at least $99 in interest on your line of credit in the previous 12 months.
Meanwhile, the repayment period is up to 20 years following a 10-year draw period. PenFed HELOC amounts range between $25,000 and $500,000.
- There is an opportunity to avoid closing costs.
- PenFed allows you to borrow up to 90% CLTV.
- You may skip paying the annual fee if you pay at least $99 in interest on your line of credit in the last 12 months.
- There is a membership requirement.
U.S. Bank is a subsidiary of U.S. Bancorp, which is one of the country’s largest commercial banks.
Currently, the company operates over 3,000 banking offices and nearly 5,000 ATMs all over the country.
Furthermore, it “provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust, and payment services products to consumers, businesses and institutions.”
To avail the best HELOC rates with U.S. Bank, you got to have at least 730 credit score, up to $100,000 loan limit, and the bank also looks into the loan-to-value (LTV) ratio.
Unlike the other ones on our list, U.S. Bank does not charge closing costs. However, you may pay a prepayment penalty of 1% on the original credit up to $500 if you pay off your loan within three years.
U.S. Bank offers HELOC amounts from $15,000 up to $750,000 or even up to $1 million if you are residing in California.
Meanwhile, repayment periods are available in 10, 15, or 20 years after a 10-year draw period.
Unless you sign up for the bank’s Platinum Checking Package, you will have to pay an annual fee of up to $90.
- It does not charge closing costs.
- The credit score requirement is high.
- Charges an annual fee of $90 if you are not a bank member.
FINAL THOUGHTS ON BEST HELOC RATES
What we have are actually just a few of the many financial institutions that offer home equity lines of credit. As stated, we specifically chose them to have the best HELOC rates in the market today.
So, have you decided yet which financial institution to get a HELOC from?