How to Get the Lowest Rate on Your HELOC

If you’re looking to get a home equity line of credit for your construction project, college funding, debt consolidation, etc., I want to give you a quick tip on how to get the lowest interest rate when you are talking with a lender.

Interest rates on home equity lines of credit are based on the prime lending rate plus a margin (think “add on”). The prime is 3% more than the Federal funds rate. If you’re looking to get the lowest interest rate, you need to get the smallest margin on your home equity line.

That margin is factored based on your credit score, the loan-to-value that you're asking for, the amount of the line you're asking for, the type of property, and the occupancy of that property. When talking to a lender, ensure you ask them about the “sweet spot” in that line of credit. It might mean that you need to take out a huge line of credit and just not use it. If you take out a huge line of credit and you only use a portion of it, remember that you're only paying interest on the portion that you're using, so it makes sense to take the biggest line of credit that you can if it will give you a smaller margin.

 

Remember, money is going to get more expensive as interest rates rise.  Keep an eye on your line of credit. Use it sparingly, and make sure you have the ability to pay it off or consolidate it later in a cash-out refinance. Here’s a video I made on different ways to finance a renovation for your home.

If you have any questions, don’t hesitate to reach out to me by phone or email. I’d love to help you.