The Best HELOC Interest-Only Lenders of 2019
One of the financial benefits of owning a home is the fact that it can grow in value over time. This helps build something called equity — the difference between your home’s value and the balance of your current loan.
As you make your monthly payments, you also build equity by paying down the loan balance.
There are several ways homeowners can access that equity, but one popular method is a home equity line of credit (HELOC). A HELOC works a lot like a credit card. You can use the credit as needed, and your monthly payment is only based on the amount you charge.
Some HELOCs require you to start paying back principal right away after you borrow against your equity. The other option is an interest-only HELOC, which only requires you pay the interest due each month for a period of time.
LendingTree reviewed data from hundreds of lenders across the nation that offer interest-only home equity lines of credit to come up with the top five lenders of 2019. Our ratings are based primarily on the interest rate terms offered to borrowers on LendingTree over the last 12 months. Then we take into account the quality of information each lender provides on their websites. You can read up on our full methodology below.
Here are the top 30-year HELOC interest-only lenders for 2019.
| Third Federal Savings Bank
Third Federal Savings Bank opened its first location in Cleveland, Ohio, in 1938, where it is currently headquartered. The bank offers mortgages in 25 states plus Washington, D.C.
Third Federal Savings Bank offered a median 30-year interest-only HELOC rate of 5.19% on the LendingTree platform.
The homepage of the website features purchase and refinance links with basic information about loan programs. The “Resources” tab provides guides about mortgage and homebuying related topics, an assortment of mortgage calculators and an FAQ section with more in-depth explainers on a variety of home financing topics.
There is an “Apply Today” button on the homepage for HELOCs.
| Royal United Mortgage, LLC
Royal United Mortgage, LLC has been in business since 2008 and is headquartered in Indianapolis. The company currently offers mortgages in Indiana, Illinois, Ohio, Texas and South Carolina.
The Royal United Bank offered a median 30-year interest-only HELOC rate of 5.44% on the LendingTree platform.
The website has loan product information and an assortment of qualification tools on the homepage, along with a blog for more in-depth articles on different homebuying and mortgage financing topics. Educational videos provide additional information about the basics of refinancing and purchasing.
There is a “Tools + More” sidebar in the “Calculators” page that include loan calculators, rates, an FAQ section, a mortgage glossary, videos and useful tips. There is no “Apply Now” button for a complete loan application, although the “Inquire Now” button allows a customer to be contacted by Royal United Mortgage.
| U.S. Bank
U.S. Bank originally started as First National Bank of Cincinnati in 1863. Besides mortgages, Minnesota-based U.S. Bank offers traditional consumer and business banking products.
U.S. Bank offered a median 30-year interest-only HELOC rate of 5.54% on the LendingTree platform.
The homepage has two tab links related to mortgages on the homepage, the “Buy a Home” tab and one called “Use your equity.” Basic loan program information is not easy to find because it doesn’t appear unless the “Compare options” button is clicked.
There are also informational articles discussing important details that homebuyers and homeowners can use to learn about purchase and refinance loan options.
There is no “Apply Now” button on the main website landing page, but there is an “Apply for a mortgage” link that can be found after clicking on the “Buy a home” button.
| Wintrust Mortgage
Founded in 1979 in Denver, Colorado, Wintrust Mortgage is a division of Barrington Bank & Trust Company, N.A., and an affiliate of Wintrust Financial Corporation. The bank offers loan products in all 50 states.
Wintrust Mortgage Corporation offered a median 30-year interest-only HELOC rate of 5.64% on the LendingTree platform.
The home page features a number of different links to basic product and loan types under the “Your First Home,” and “Your Next Home” menus. A “Learning Center” section provides a glossary of terms, as well as articles on a number of topics related to mortgages and buying a home.
There are also mortgage calculators on the home page labeled according to the type of calculation they determine such as “How Much Home Can I Afford?” and “What Will My Monthly Payments Be?” There is no “Apply Now” button but the “Get Started” button leads the user to a link where an application can be filled out.
| Caliber Home Loans
Caliber Home Loans started in 2008 and is licensed in 50 states to offer FHA, VA, and USDA loans, as well as jumbo loans up to $2.5 million and home equity products.
Caliber Home Loans offered a median 30-year interest-only rate of 5.70% on the LendingTree Platform.
The Caliber Home Loans home page provides extensive information about loan types and programs, as well as informational articles about topics related to homebuying and refinancing. The “Tools and Resources” section provides mortgage calculators, FAQs and even a weekly market commentary report that gives readers an idea of which way interest rates are headed.
There is an “Apply Now” button with a link to an online application.
How we choose our “best” lenders
Our “best” winners aren’t chosen based on rate alone, but also with a unique rating developed by our editorial staff called “Online Information Quality,” or OIQ. We’ve taken extra time to review the information you can access online, including how easy it is to access loan product information, use mortgage tools like mortgage calculators and fill out a loan application.
To determine the best 30-year fixed-rate HELOC lenders, we analyzed data from actual loan terms offered by lenders to borrowers on LendingTree. We chose the top five lenders by rate for the last 12 months. Then we selected for lenders that originate mortgages in at least 25 states. From that list, we gave each lender an OIQ rating based on answers to the following when accessing the lender’s main website. One point was given for each yes answer.
Is there general product information on the website?
If the website features both basic terms of the loan (30 year, 15 year, adjustable rates) and program offerings (FHA, Conventional, FHA, VA), it scores a full point.
Is there general home loan information on the website?
Borrowers can make the most informed decisions if they have additional information regarding mortgages in the form of explanation articles, FAQ sections or links to an informational blog. Sites that have additional mortgage information score an extra OIQ point.
Is the general home loan information easy to find?
If the information is available with less than two clicks on the homepage, it scores an extra point, since a consumer will be able to get the information easily without having to search extensively through the site.
Are there any education tools (e.g. loan calculators) on the page or at least one click away from the homepage?
Mortgage calculators, home value estimators and other tools help consumers to make educated decisions, so landing pages that feature them score an additional OIQ point.
Is it easy to find the “apply now” button?
Mortgage users in the digital age want a quick online way to apply for a mortgage, so if the “Apply Now” button is easy to find on the homepage, it will be easy for a consumer to apply once they’ve gotten the information they need to proceed to the next step in the mortgage process.
Shopping tips for interest-only HELOCs
Tip 1: Know your three Cs
In the world of mortgage underwriting, the “three Cs” are credit, capacity and collateral. These three factors can result in the approval or decline of any mortgage application, so before you get started, you need to know how each of them relate to your financial situation.
In order to get an accurate rate quote on any mortgage product, you need to know your credit scores. Lenders analyze if you’ve made on time payments, how much credit you have, how long you’ve had it and what types of credit you have.
Most HELOC lenders will require a minimum credit score of 620, and require your mortgage payment history reflect on time payments. Credit requirements may be more stringent for the interest-only option.
Capacity is determined by how much income you earn every month, compared to how much total debt you’ll have once your potential new house payment is factored in. This is more commonly referred to as your “debt-to-income” ratio, and is calculated by dividing your total monthly debt by your before-tax income.
The DTI calculation is a little different on an interest-only HELOC since the lender has to use a worst case payment based on how much you might be able to charge on the line of credit, and will usually count the highest possible payment against you for qualifying purposes, even though your interest-only payment may be substantially less. Most fixed rate interest-only home equity line of credit lenders won’t let you exceed a 50% DTI.
When it comes to a HELOC, the other important capacity calculation is your loan-to-value (LTV). This determines the total percentage of loan you are able to borrow compared to your home’s value.
According to the FTC, interest-only HELOC lenders won’t let you borrow more than 85% of the value of your home, although there are some lenders with niche programs that allow you borrow up to 95% of the value of your home.You may not be eligible to borrow up to the maximum if your credit scores are low.
The term collateral relates to the type of property you are buying. Purchasing a condominium or manufactured home comes with different rules than buying a single family residence, and to get an accurate rate quote, you’ll need to make sure you price your rate based on the type of property you are refinancing.
The value of your home is very important when refinancing, and is somewhat more difficult to guess because you don’t have a purchase contract to guide the appraiser’s opinion of value. Before you apply for an interest-only HELOC, it’s a good idea to contact the realtor who helped you buy your home to have provide you with a something called a comparative market analysis (CMA), which looks at how much nearby houses similar to yours have sold for recently.
Not all interest-only HELOC lenders will require a full appraisal, opting instead for something called an automated valuation model or “AVM,” tracking closed sales near your home through a public records database
Keep in mind that the higher your LTV, usually the higher the rate, so if your appraised value is lower than what you estimated, the costs and interest rate you were originally quoted could go up.
Tip 2: Know the loan programs you qualify for
An interest-only HELOC may require higher credit scores and a lower DTI than refinance programs. The minimum requirements may vary from lender to lender, and many of the very low teaser rate programs have very strict qualifying requirements.
Use the information you gathered from the three C’s above to evaluate the programs that you are most likely to qualify.
Tip 3: Get your rate quotes on the same day, in writing
Because interest rates on HELOCs are tied to economic indexes that usually only change when the Federal funds rate increases or decreases, they tend to be more stable. However, if you are being offered a teaser rate for set period of time, be sure you get that information in writing.
One note about interest-only HELOCs: The rates are impacted by how much you borrow, and bigger loan amounts tend to come with lower interest rates. Be sure you are comparing the same loan amount with each lender.
Be sure to let the loan officer know what you think the estimate value is, and be prepared to provide your address in case the lender wants to run something called an “automated valuation model” (or AVM). This is a computerized system that does a quick analysis based closed sales in the public records database near your address and ZIP code.
The systems are not always accurate, so don’t be too discouraged or get too excited if you see an unexpected value estimate from one of these systems. As mentioned above, your realtor’s CMA will be a much better baseline for what’s happening to home values in your area.
Tip 4: Only compare the lender fees when making your decision
Loan estimates contain a lot of information about the costs associated with a first mortgage, but according to the Consumer Finance Protection Bureau they aren’t required on interest-only HELOCS, so you’ll need to make sure you carefully review the fee estimates you receive from each lender. You should get a truth-in-lending disclosure instead of a loan estimate.
Ignore costs like title fees, prepaid interest, property taxes and homeowners insurance and mortgage insurance — those fees will be the same regardless of the lender you choose. One helpful tip: Even though your mortgage company may have a preferred title company, you aren’t required to use them on an interest-only HELOC.
Final decision making
When it’s time to make the final decision, you’ll want to consider a few thing besides the final rate and costs.
- Fast closing times: Depending on how much of your home’s equity you access for a HELOC, you may be able to close on an interest-only HELOC very quickly. Normally you aren’t required to draw money at closing, but check with each lender to be sure before you close.
- Personalized service: Some customers still prefer a face-to-face meeting with someone, so take this into consideration if you are only speaking to online, interest-only HELOC lenders. You may work with multiple people during the process, so if you want one person to guide you through to your closing, you may want to choose a local bank.
- Get an special terms in writing: Be sure you confirm any teaser rate and closing cost discounts before you sign. Banks may have an expiration date for a special offer on an interest-only HELOC so be sure your closing papers reflect what you were offered.
The information in this article is accurate as of the date of publishing.
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