When should I lock the rate on a home equity line of credit?
A home equity line of credit (HELOC) is a lot like a home equity loan in that it is a loan against the equity of the borrower’s home; it represents a lien against the property. Unlike a home loan, however, a HELOC is variable–you don’t need to take out one lump sum at a time. Additionally, you are only charged for borrowing the funds you use, not on the full amount of the credit line. Borrowers are rarely charged prepayment fees because of the nature of a HELOC.HELOC AdvantagesReview the main advantages of a HELOC. This helps to understand the best time to lock in a rate for your circumstance. The main advantage for a HELOC is that the money is there for emergencies, like a credit card is, but you only pay interest on the amount borrowed. Additionally, you can often deduct the interest paid on any amount borrowed from your federal taxes.Rate FlexibilityDepending on your lender and the terms of the HELOC, you may have the option to lock in a rate for a certain part of the loan balance.
