How do you choose which HELOC lender to apply for?

Question

How do you choose which lender to apply for a HELOC? Is it best to just go with whoever has the lowest rate? I've heard that credit unions are usually good...but does anyone have any specific recommendations?

Also, HELOCs have variable rates, but does that mean a lender can jack up rates to whatever they want? So like if I get a 3% APR from a credit union right now, that rate could end up being 7% next year if the credit union wishes it to be? Or are there limits to what they can charge?

Thanks!

John Ludwig · Answer

@Natalie Hahn

Some recent HELOC terms I was able to obtain at a local credit union in Wisconsin.

• (-.5%) Prime.  Current WSJ Prime is 5.5%.  Equals 5%.
• You can lock in a fixed rate on a lump sum withdrawal
• 10 year term, reviewed after 5 years
• No closing costs
• No annual maintenance fee
• Had to bring driver's license and $5 to deposit at closing

Had friends recently quoted with big banks at 7% plus.

Chris Mason · Answer

To answer both questions, you want to know what the "margin" is, not the introductory rate. It'll be tied to a neutral index, typically WSJ "Prime" rate. So if their margin is "Prime + 1.5%," then each adjustment it will just go to the prime rate plus their 1.5% profit margin. It's more important to know that than the teaser rate they get you in the door with.

You will wand to call around. HELOCs vary greatly, it's not like the Fannie stuff where you call 20 lenders and they are all within 0.25% of each other... they will vary easily by 2% or so. Some higher net worth individuals can get a margin that is a negative number, meaning the lender is losing money on the HELOC to keep the customer banking with them for their other services offered. Give someone like @Jay Hinrichs a HELOC like that, and he'll immediately turn around and lend that money he borrowed at 2% out to someone else at like 14%, and good for him.

Quick note, HELOCs are often used as a cross-selling platform. So the lender with the thinnest margin might set it up such that you walk in for a HELOC, and walk out with a HELOC, a checking account, a savings account, a CD, and a credit card... Wells Fargo style, where each customer "should"  have as many accounts as possible with them as they can get you signed up for. They're making up for that margin somewhere.

Saravanan Saravanan · Answer

@Natalie Hahn

For primary residents HELOC is relatively easier to get.  Check with local credit unions for good rates or banks.

Normally these are tied up with prime rate + x%  The x could be 1%;  2% or what they give you in contract.  They may have yearly fee and some many not have that.  Some charge appraisal fee to get HELOC and some waive it.

How do you choose which HELOC lender to apply for?

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