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How to Find the BEST Rate on a HELOC
When you’re looking to find the best rate on a HELOC (Home Equity Line of Credit), it’s important to know that not all rates are the same. Rates can vary widely depending on where you shop, whether it’s a bank, a credit union, or a mortgage broker. So, how do you make sure you’re getting the best deal? It all comes down to understanding one key factor: the margin.
What Makes Up a HELOC Rate?
To find the best rate, you need to understand how HELOC rates are calculated. A HELOC rate is made up of two parts:
- The Index: This is a base rate that all lenders use, which is the prime rate from The Wall Street Journal. The index is the same no matter where you go.
- The Margin: This is what the lender adds an additional percentage on top of the index. The margin is essentially the lender’s profit, and it can vary greatly between different institutions.
For example, I recently helped a client, Steve, who was shopping for a $100,000 HELOC. One lender, a credit union, offered him a rate with an 8.5% interest. However, a mortgage broker offered a rate of 12.5% for the same loan. That difference in the margin would have cost Steve an extra $4,000 in interest each year. It is important to keep this in mind when looking for a HELOC so you don’t pay more than you have to!
Focus on the Margin
Since the index is the same across all lenders, your main focus should be on finding the lowest margin. Think of it like shopping for gas. You might drive down the street and see three gas stations. However, each one is charging a different price for gas, even though they all get their supply from the same refinery. The difference between them is in the profit each station wants to make.
Similarly, different lenders charge different margins based on how much profit they want to earn. For example, one credit union the area offers a 0% margin, meaning they’re not adding any extra profit to the index. On the other hand, some banks and mortgage brokers might add margins of 2%, 3%, or even 6%. That’s why it’s crucial to shop around and compare.
How to Shop for the Best Margin
When you’re ready to shop for a HELOC, start by comparing margins. Call or visit 10 to 15 different credit unions, banks, and mortgage brokers. Ask them about their margins. Once you’ve found a few with the lowest margins, then you can look at other factors like fees or terms.
For example, in Steve’s case, taking the time to find the best margin could have saved him between $4,000 and $5,000 in interest over the life of the loan. That’s money that could go towards other bills, paying down debt, or just enjoying life a little more.
Start Shopping Smart
To get the best HELOC rate, start with the margin. Focus on finding the lowest one, then compare other costs. By shopping smart, you can save a significant amount of money and put it towards the things that matter most in your life.
If you need help getting started, download our free HELOC Shopping Scorecard below or check out our website for more info. And remember, every dollar saved on interest is a dollar you can invest back into your life.
Watch our most recent video to find out more about How to Find the BEST Rate on a HELOC
Are you thinking about a cash-out refinance? While it might seem like a great idea to free up some cash each month, it creates further financial strain in the future. Therefore, before you jump in, let’s look at the numbers in order to see how this decision could cost you a whopping $250,000 over time. Let’s begin by looking at the average debt provided by Dave Ramsey.
What is a Cash-Out Refinance?
To clarify, a cash-out refinance allows you to take out a new mortgage for more than you currently owe, as well as pocket the difference. It’s tempting if you’re looking for some extra cash or want to consolidate debt. However, in today’s market, with interest rates climbing, you might be setting yourself up for a costly surprise.
Cash-Out Refinance |
||||
| New Loan | Interest Rate | Monthly Payment | New Total (Current Payment $2,669 – Cash-Out Refinance $1,962) | |
| New Mortgage Balance | $295,000 | 7% | $1,962 | $707 (Monthly Relief) |
Cost of Cash-Out Refinance |
||||
| Monthly Payment | Remaining Number of Payments | Cost Over Loan Life | Additional Money Out of Your Pocket!
(Refinance Cost $706,550 – Total Cost Previously $454,591 |
|
| $1,962 | 360 | $706,550 | $251,959 | |
What is a Home Equity Loan?
A Home Equity Loan, on the other hand, is a type of loan where you borrow against the equity you’ve built up in your home. To put it another way, it’s a second mortgage with a fixed interest rate, a set repayment term, as well as consistent monthly payments. Unlike a HELOC, which acts like a credit line, a Home Equity Loan gives you a lump sum upfront that you repay over time. Therefore, it is a stable option for consolidating debt or financing big expenses.
Home Equity Loan |
||||
| New Loan | Interest Rate | Home Equity Loan Payment + Mortgage | New Total (Current Payments $2,669 – Mortgage with HEL $1,959)
(Credit cards and auto loan paid off) |
|
| Home Equity Loan | $57,500 | 9% | $793 + $1,166 = $1,959 | $710 (Monthly Relief) |
Cost of Home Equity Loan |
||||
| Monthly Payment | Remaining Number of Payments | Cost Over Loan Life + Mortgage | Additional Money Out of Your Pocket!
(Home Equity Loan Cost $461,249 – Total Cost Previously $454,591 |
|
| $793 | 105 | $83,287 + $377,962 =
$461,249 |
$6,658 | |
Monthly Payment Relief: What Does It Really Cost?
Sure, both options give you that monthly payment relief you’re looking for, however, only one of them doesn’t mortgage your future. Therefore, by choosing the home equity loan over the cash-out refinance, you will not only save big now, but in the long run as well.
| Out of Pocket | Difference Between the Two Options | |
| Cash Out Refinance | $706,550 | $245,301 |
| Home Equity Loan | $461,249 |
Bonus: Short-Term Impact
Some people say they won’t keep their mortgage for 30 years. However, the financial impact of a cash-out refinance can be seen after just one year!
BONUS: Cash Out Refinance: Cost By Year |
|
| Year | Cost |
| First Year | $12,975 |
| Third Year | $26,987 |
| Fifth Year | $42,894 |
| Tenth Year | $80,679 + $11,898 = $92,577 |
Your Best Option in Today’s Market
In today’s market, a home equity loan is often the better choice. It not only provides the monthly relief you need, but it also doesn’t cost you a fortune in the long run. Remember, it’s not just about getting by today, it’s about protecting your future, too.
Do You Know How to Calculate Your HELOC Payment?
Thinking about adding a Home Equity Line of Credit (HELOC) to your financial toolkit but unsure about the payments? You’re not alone. Many people want to know what to expect before they sign on the dotted line. In this guide, we’ll break down a simple way to calculate your HELOC payment using real examples. Let’s get started!
Understanding HELOC
What is a HELOC? A Home Equity Line of Credit (HELOC) is like a mortgage on your house, however, it works more like a credit card. You get a starting balance that you can borrow against, and during the draw period, you can borrow and pay back as much as you like. To clarify, this draw period usually lasts 5 to 10 years.
Example Scenario
Let’s look at an example to see how it works.
Someone wants to move $20,000 of debt to their HELOC because they have credit cards with higher interest rates. They want to know what their payments will be after the first month.
Step-by-Step Calculation of your HELOC Payment
- HELOC amount: $20,000
- Interest Rate: Most HELOCs start at Prime. For this example, let’s use an 8.5% interest rate.
Calculating the Interest
- Yearly Interest:
- $20,000 × 8.5% = $1,700 per year.
- Monthly Interest:
- $1,700 ÷ 12 = $141.67 per month.
So, the rough monthly payment is about $140. Remember, this is just an estimate. The actual amount can vary slightly each month since interest on a HELOC is calculated daily.
Comparing HELOC Payments to Credit Card Payments
In this case, the person was paying about $600 a month in credit card payments. Of that, $400 was just the interest. By moving everything to a HELOC, they now pay around $140 in interest. This change saves them about $260 per month.
Conclusion
Calculating your HELOC payment can help you understand your financial options better. If you have questions or need more examples, feel free to ask in the comments. We’re here to help!
Download the HELOC Payment Calculator here!
For more tips and tools, check out our other videos and resources. And remember, the goal is to use debt wisely so it doesn’t use you.
Pay Less For Debt: Credit Card vs. HELOC Calculator
Are you a homeowner looking for ways to put more money into your life? Whether it’s for relief, fun, or just to survive, moving money from a credit card to a HELOC (Home Equity Line of Credit) can save you a lot. Let’s take a closer look at how you can pay less for debt today!
Understanding Your Debt
Nowadays, most of us have more debt than investments. Therefore, it’s smart to spend some time looking at our debt and finding ways to save money.
Example Scenario
Let’s first consider a person with three credit cards totaling $21,000. The average interest rate on these cards is 24%. Therefore, over a year, they will pay about $5,040 in interest.
Now, we know credit cards have different rates and balances, but for simplicity, let’s say each card has a balance of $7,000 with interest rates between 19% and 29%. This gives us an average interest rate of 24%.
If you want to find your average interest rate, you can use a simple spreadsheet. Just plug in your numbers to get a rough estimate.
Moving to a HELOC
What happens if this person moves their $21,000 debt to a HELOC?
A typical HELOC today has an interest rate of about 8.5%. On $21,000, that’s around $1,785 in interest per year.
The Big Difference
Let’s break it down:
- Credit Card Interest: $5,000 per year
- HELOC Interest: $1,785 per year
That’s a difference of $3,200 per year!
What Can You Do with $3,255?
Think about what an extra $3,255 can do for you:
- Go out to lunch
- Take your family to dinner
- Go on a vacation
- Simply enjoy life more
- Or wake up knowing your day will be better without worrying about making payments
Real-Life Impact
This extra money can bring so much relief as well as joy into your life. Whether you decide to use it to get out of debt, enjoy life, or make sure your kids have what they need, the goal is the same: putting more money in your pocket and less in the banks.
Conclusion
By using a HELOC to pay off your credit card debt can save you thousands of dollars each year. As a result, this simple move puts more money in your pocket, and allows you to enjoy life more. Whether you use the extra cash to get out of debt, have fun, or cover essentials, the goal is to relieve stress, as well as improve your financial situation.
Download our spreadsheet in order to see your potential savings, and start making smarter financial decisions today. More importantly, if you found this information helpful, please visit our website for more tips on managing debt and boosting your finances.