Exploring the Pros and Cons of Guaranteed-Rate HELOCs
May 10, 2023
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If you're considering a home equity line of credit (HELOC), you may be wondering if you can get a guaranteed rate for the duration of the loan. While some lenders may offer fixed-rate HELOCs, they are not common. In this article, we'll explore what guaranteed rates for HELOCs are and whether they are a good option for borrowers.
What are Guaranteed Rates for HELOCs?
A guaranteed rate for a HELOC is a fixed interest rate that remains the same throughout the duration of the loan. With a traditional HELOC, the interest rate is variable and can change over time based on market conditions. While a guaranteed rate may seem like a good option, it's important to understand that it may come with some drawbacks.
Pros and Cons of Guaranteed Rates for HELOCs
Guaranteed rates for home equity lines of credit (HELOCs) may seem like an attractive option for borrowers who want certainty and stability in their monthly payments. However, like any financial product, there are pros and cons to consider before choosing a guaranteed-rate HELOC.
Pros:
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1. Predictable payments: With a guaranteed-rate HELOC, borrowers can enjoy the stability of fixed payments over the life of the loan. This can be a particularly attractive option for borrowers who want to budget more effectively or who have a fixed income.
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2. Protection against interest rate hikes: With a variable-rate HELOC, borrowers run the risk of their interest rate increasing over time, which could significantly impact their monthly payments. With a guaranteed-rate HELOC, borrowers can avoid this risk.
Cons:
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1. Higher interest rates: Guaranteed-rate HELOCs often come with higher interest rates than traditional variable-rate HELOCs. This means that borrowers could end up paying more over the life of the loan, even with the stability of fixed payments.
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2. Limited flexibility: With a traditional HELOC, borrowers can draw on their credit line as needed and only pay interest on the amount they borrow. With a guaranteed-rate HELOC, borrowers may be required to take out the full amount of the credit line upfront and pay interest on the entire amount, even if they don't need all of the funds right away.
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3.Limited availability: Guaranteed-rate HELOCs are not common and may be harder to find. Borrowers may have to do some research to find a lender that offers this type of loan.
How does a guaranteed-rate HELOC differ from a traditional HELOC?
A guaranteed-rate HELOC differs from a traditional HELOC in that it offers fixed interest rates and fixed monthly payments over the life of the loan, rather than variable rates that can fluctuate over time. This can provide borrowers with more certainty and stability in their payments, but it may come at the cost of higher interest rates and limited flexibility. With a traditional HELOC, borrowers can draw on their credit line as needed and only pay interest on the amount they borrow. With a guaranteed-rate HELOC, borrowers may be required to take out the full amount of the credit line upfront and pay interest on the entire amount, even if they don't need all of the funds right away.
Is a guaranteed-rate HELOC the right choice for me?
Determining whether a guaranteed-rate HELOC is the right choice for you depends on your individual financial situation and goals. If you value stable monthly payments and protection against interest rate hikes, a guaranteed-rate HELOC may be a good option. However, if you prefer the flexibility of a traditional HELOC and are willing to take on the risk of variable interest rates, then a guaranteed-rate HELOC may not be the best choice. It's important to carefully consider the pros and cons of each type of loan and consult with a trusted financial advisor or lender to determine which option is best for you.
Ready to unlock the value in your home and make smart financial decisions? Get a quote from Hitch today and experience the benefits of our digital HELOC platform. Our streamlined process, personalized approach, and commitment to your financial health make us the ideal choice for your home equity needs. Don't wait, take control of your finances with Hitch!
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Hitch, Inc. #2363780
2158 NW Toussaint Drive. Bend, Oregon 97703
1. Qualified applicants may borrow up to 95% of their home’s value. This does not apply to investment properties.
2. HELOCs have a 10-year draw period. During the draw period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) the total of all accrued finance charges and other charges for the monthly billing cycle. During the draw period, the monthly minimum payments may not reduce the outstanding principal balance. During the repayment period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) 1/240th of the outstanding balance at the end of the draw period, plus all accrued finance charges and other fees, charges, and costs.The lender will calculate this amount by taking the outstanding Account Balance on the last day of the draw period and dividing it by 240 months and then adding any finance charge that accrues but remains unpaid during the monthly billing cycle plus any other fees, charges and costs to the fixed principal payment that is due. During the repayment period, the monthly minimum payments may not, to the extent permitted by law, fully repay the principal balance outstanding on the HELOC. At the end of the repayment period, the borrower must pay any remaining outstanding balance in one full payment.
3. The time it takes to get cash is measured from the time the Lending Partner receives all documents requested from the applicant and assumes the applicant’s stated income, property and title information provided in the loan application matches the requested documents and any supporting information. Most borrowers get their cash on average in 21 days. The time period calculation to get cash is based on the first 4 months of 2024 loan funding's, assumes the funds are wired, excludes weekends, and excludes the government-mandated disclosure waiting period. The amount of time it takes to get cash will vary depending on the applicant’s respective financial circumstances and the Lending Partner’s current volume of applications. Closing costs can vary from 3.0 - 5.0%. An appraisal may be required to be completed on the property in some instances.
4. Not all borrowers will meet the requirements necessary to qualify. Rates and terms are subject to change based on market conditions and borrower eligibility. This offer is subject to verification of borrower qualifications, property evaluations, income verification and credit approval. This is not a commitment to lend.
5. The content provided is presented for information purposes only. This is not a The content provided is presented for information purposes only. This is not a commitment to lend or extend credit. Information and/or dates are subject to change without notice. All loans are subject to credit approval. Other restrictions may apply.