Recently, many big and small banks have started to offer the so called home equity line of credit or also known as HELOC instead of the usual home equity loans. This is basically a form of fixed rated home equity loan that comes with a variety of features. Known as hybrid product, it does have its own benefits, drawbacks and quirks. It also has its own rules which can be different to other home equity loans. This time, we will learn about this new loan including how it works for you and other customers,
HELOC offers new option with fixed rate. It is known as the third alternatives offered by various lenders including Wells Fargo and Bank of America Corporation. They have been using this loan to replace the previous home equity loans due to the new regulations in mortgage. This loan does have some differences than the usual home equity loans. It includes differences on the features of fixed rate option. See the thorough details below.
Fixed rate loan has certain minimum and maximum length. This time, HELOC offers 1 to 30 years of term. And just like other fixed rate loan, the monthly payment is smaller for loans with longer term although actually you pay more interest. Fixed rate is somehow seen as standard choice where the borrowers pay the same interest rate from the first year until the last year. However, some lenders may limit your choices of your loan’s term on the fixed rate. In other words, in the first 5 years you pay fixed rate and the in the rest of the years, you pay progressive rate. Therefore, you should carefully know the details before signing.
In a loan with fixed rate, it is always better for you if you have more fixed-rate balances. Therefore, it is necessary to check whether the lenders charge for the increased flexibility or not through higher fees or interest rates. Meanwhile, there is also the so called minimum fixed rate balance where you are required to borrow minimum amount in order to lock in fixed rate. This is commonly applied in most of the banks.
The annual limits apply on fixed rated home equity loan. It means that some lenders cap how many fixed rate balances that you can lock every year. Usually, you can carry up to 3 fixed rate balances in total but you cannot create those three in the same year. Instead, you can only create less than 2 caps in the same year.