Where to get a HELOC

Uneven economic conditions continue to hit Americans where it counts—their wallets. Despite a cooling inflation rate, experts maintain inflation will likely remain stubbornly high through the rest of the year. Many economists also believe the Federal Reserve's efforts to fight inflation will likely lead to a recession. On top of that, gas prices are projected to climb to a national average of $4 a gallon by summer after OPEC oil producers' recent announcement of production cuts.

As Americans feel the pinch of rising costs for groceries, gas and other essentials, many are looking for ways to make ends meet. For homeowners, a home equity line of credit (HELOC) is one option to access the cash you need.

A HELOC is a second mortgage that allows you to borrow up to 85% of your home's equity. As a revolving credit line, HELOCs operate like credit cards; you can borrow only as much as you need, when you need it, and repay the debt over time. You can use your HELOC for virtually any purpose, from paying off high-interest debt to covering a home renovation project. Just understand that HELOCs are secured loans that use your primary residence as collateral.

If you think a HELOC makes sense for you then start exploring your options here now.

Where to get a HELOC

You can obtain a HELOC through your current lender or another financial institution, such as banks, credit unions and online lenders. Here are the options to know:

Your current lender

One obvious place to get a HELOC is with the lender who holds your current mortgage. They may even send you offers to apply for a HELOC.

Obtaining a HELOC through your current mortgage lender could make sense. For starters, managing your mortgage loan and HELOC through the same online dashboard or app could be easier than using separate portals for each lender.

You might save money by taking out a HELOC with your current lender. Ask your lender if they offer special loyalty rates, reduced fees or better terms for existing customers. You may be able to obtain a lower interest rate or reduced closing costs and fees as an existing client.

Of course, you'll need to compare your lender's HELOC interest rates, terms and fees against other lenders' offerings to ensure you're getting the best deal for your financial situation.

A different lender

While taking out a HELOC with your current lender has its perks, it's essential to consider all your options. Broadening your search may improve your chances of finding a HELOC with lower rates and features that best suit your financial needs and goals. Consider these options as you shop for a HELOC:

• Banks: Traditional banks like Bank of America and U.S. Bank have long provided home equity loans, HELOCs and a wide array of other loan products. While these banks often offer competitive rates and terms, they may come with more stringent credit requirements.
• Credit unions: These not-for-profit financial institutions can be local, regional or national and are owned by their members. As such, you may find lower interest rates and fees on their HELOCs than a traditional bank since they're meant to benefit its members. Before applying for a HELOC through a credit union, you must become a member by meeting its eligibility criteria. PenFed Credit Union and Bethpage Federal Credit Union are examples of well-known credit unions.
• Mortgage lenders: These lending institutions, such as Rocket Mortgage and United Shore Financial, specialize in providing home loans, including HELOCs. Some mortgage lenders have access to a broader range of loan products than a bank or credit union.
• Online lenders: Online lenders like Discover and Figure are convenient alternatives to traditional brick-and-mortar banks and credit unions. These lenders may have lower operating costs since they offer their HELOCs through their online platforms, not physical branch offices. Consequently, online lenders typically offer competitive interest rates and fees on HELOCs and home equity loans.

Explore your HELOC options here now to find the best lender for your needs.

Shop and compare HELOCs

It's essential to minimize your borrowing costs to ensure affordable payments on your HELOC. Comparing multiple lenders and HELOC lines can help you secure the best rate and lowest fees.

As you compare different lenders and HELOCs, be on the lookout for fees and penalties that drive up the cost. For example, if you plan on quickly repaying the HELOC, you might think twice about getting one that charges a prepayment penalty.

Remember, HELOCs are divided into draw and repayment periods. You can draw money when needed up to your limit during the draw period, often for 10 years. Once the draw period ends, the repayment period begins, usually for a period of 20 years. You won't be able to draw money from your HELOC during the repayment period.

But since terms vary by lender, be sure you understand the terms and repayment schedule of any HELOC. Interest rates are typically variable with a HELOC, so your payment could change over time. Also, some lenders require you to repay the total borrowed amount immediately once you enter the repayment period.

You can get a HELOC from most financial institutions that offer mortgages and other loans. For the best HELOC, aim for one with the lowest interest rate and fees, that doesn't impose prepayment penalties or minimum balance requirements.