Negotiating the Best HELOC Rates and Terms

In order to get the best HELOC rates and terms, you will have to do your fair share of negotiating. A home-equity line of credit can be a great tool to use for a number of different purposes. However, unless you do your homework and get the best deal, it could end up costing you a lot of money. Here are the basics of negotiating the best HELOC rates and terms available.

Multiple Lenders

Before you start negotiating, you need to shop around among multiple lenders. By doing this, you will be able to get some leverage in your negotiations. The lending industry is very competitive, and if a lender knows that you have an offer from another lender, the second lender is going to do their best to beat it. You can use this to your advantage when you are negotiating with them.

Margin

One thing that you will want to make sure that you negotiate is the margin. With most home-equity lines of credit, there will be a margin that you will have to deal with. When you have an adjustable-rate loan, the interest rate is going to be tied to a financial index. When this interest rate increases or decreases, the lender is going to add a certain amount of margin onto that underlying index. The margin requirement is going to be different for every borrower and every lender. This means that you should be able to negotiate this portion of the contract. Getting a lower margin means that you will have to pay less money in interest over the life of the loan.

Hidden HELOC Fees

You also need to make sure that you get a detailed representation of the fees that will be involved with the loan. Every lender is going to have a different fee structure when it comes to this type of loan product. This means that you need to try to negotiate your way out of as many fees as possible. Make sure that you know all of the fees that will be involved so that you are not taken by surprise with anything.

Interest Rate Caps

Something else that you may need to negotiate is an interest rate cap. With adjustable-rate loans, sometimes interest rate caps will play a role in how much your payment can increase. For example, a loan might have an annual interest rate cap of 2 percent. This means that regardless of how much the underlying index goes up, your interest rate can go up by only 2 percent for the year. You want to successfully negotiate a very low interest rate cap if possible.

Intro Rates

Many home-equity lines of credit also have intro rates. This means that you will get a very low introductory rate of interest for a certain amount of time. You want to do your best to negotiate a long introductory period as well as a low interest rate during this period. 

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