If you’re considering a home equity loan or line of credit (HELOC), you may encounter lenders’ various home equity promotions. These can range from cash-back offers to waived fees and competitive interest rates.
While home equity promotions may seem attractive, it’s essential to understand how they work and whether they suit your financial situation.
In this guide:
- Why do lenders offer promotions on home equity loans and lines of credit?
- Home equity loan promotions
- HELOC promotions
- How important are promotions when comparing companies?
- How to choose a home equity loan or HELOC
Why do lenders offer promotions on home equity loans and lines of credit?
Many lenders offer home equity loan promotions—such as discounted interest rates or waived fees—to attract new customers and get new business. Not all lenders offer home equity and HELOC promotions, but many do.
A home equity loan is a one-time lump sum you borrow against the equity in your home. Many feature fixed interest rates and a fixed term.
A home equity line of credit (HELOC), on the other hand, is a revolving line of credit that allows you to borrow against your home’s equity as needed. Many HELOCs feature variable interest rates.
Home equity loan promotions
Lenders offer various promotions on home equity loans to entice borrowers to choose their products over other lenders’.
Lenders’ home equity loan promotions might include:
- Rate discounts: Lenders might offer rate discounts for autopay or being a current customer, which can lower the interest rate for the life of the loan. For example, Wells Fargo gives relationship discounts to qualified customers.
- Waived fees or closing costs: Lenders might waive certain fees, such as origination or application fees, to make a home equity loan more affordable for borrowers. Lenders might also cover the closing costs associated with the loan up to a certain limit.
- Others: Lenders might offer free appraisals, rate-lock guarantees, or other incentives to attract borrowers.
Borrowers may need to meet certain qualifications, such as a high credit score or a low debt-to-income ratio, to be eligible for some home equity promotions.
Lenders offer various HELOC promotions to attract borrowers, including:
- APR promotions: Lenders may offer HELOC introductory rates for six months to a year to attract new customers. After the promotional period ends, the interest rate will reset to the standard rate, which is often higher than the promotional rate. We recommend ensuring you can afford payments with a higher interest rate.
- Rate discounts: Lenders may offer rate discounts for borrowers who meet certain criteria, such as having a high credit score, having a certain amount in assets with the bank, or setting up automatic payments.
- Variable-to-fixed rates: Lenders may offer promotions that allow borrowers to convert their variable-rate HELOC to a fixed-rate loan. This can provide borrowers with more stability in their monthly payments.
- Waived fees or closing costs: Lenders may offer promotions that waive fees associated with HELOCs, such as application fees, appraisal fees, or closing costs. This can help borrowers save money upfront.
- Cash-back incentives: Lenders may offer cash-back incentives for borrowers who open a HELOC with them. These incentives can range from several hundred to several thousand dollars.
Many HELOC promotions come with caps or strict requirements. For example, a bank may only waive closing costs up to a specific dollar amount, or low introductory APRs may expire after six to 12 months.
How important are promotions when comparing companies?
Home equity and HELOC promotions can be important when comparing lenders. However, they aren’t the only factor to consider. It’s crucial to look at the loan terms outside of the promotional period too.
Home equity loan promotions can offer attractive terms. Still, these promotions often have limitations:
- The low introductory rates may only last for several months or a year, after which the rate increases, making the loan more expensive in the long run.
- Promotions may require you to meet certain qualifications, such as having a high credit score or a certain level of equity in your home.
- Promotions may only be available for a limited time or to a limited number of borrowers.
When comparing companies, consider the promotional terms and the terms outside the promotion period, such as the interest rates, fees, and prepayment penalties. These factors can give you a better sense of the actual cost of the loan and whether it’s suitable for your needs.
How to choose a home equity loan or HELOC
By comparing these factors, you can determine which home equity loan promotion is the best fit for your needs and financial situation.
- Interest rates: Compare the interest rates of each promotion and see which one offers the lowest HELOC rate or the best terms for your needs.
- Fees: Check for any fees associated with the loan, including application fees, origination fees, closing costs, or annual fees, and factor them into your decision-making process.
- Loan terms: Consider the length of the loan and the repayment period, as well as any flexibility in terms of repayment options.
- Borrowing limits: Look at the maximum amount you can borrow with each promotion and determine which can provide the funds you need.
- Reputation of the lender: Research the lender’s reputation, customer service, and reviews to ensure it has a good track record.