Recent rate cuts have made it possible for homeowners to take out a HELOC at record low rates. For those who can qualify, it’s extremely tempting to take out a home equity line of credit.
However, unlike second mortgage loans, HELOCs have rates that can adjust upward.
Reuters reports:
“Home equity lines of credit (HELOC) currently are charging rates as low as 3.5 percent; they are cheaper than regular mortgages now. But that may not last. Borrowers will have to make their best guess in predicting whether they will be able to pay off their HELOCs before rates rise to mortgage-topping levels. If you’re looking at a very large balance on a HELOC and are uncertain about when — if ever — you will be able to pay it off, consider rolling it into a new mortgage along with your existing loan.”
When taking out an equity loan, borrowers have to ask themselves if they want have the rock-bottom HELOC rates or the rate security of a fixed-interest second mortgage.
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