Both Bank of America home equity loans and lines of credit allow you to borrow against the appraised value of your home, providing you with cash when you need it. Here’s what the terms mean and the differences between a home equity line and loan that can help you figure out whether they’re the right fit for you.
If you’ve built up equity in your home—if it’s worth more than the balance on your mortgage—you may be able to use part of that value to meet financial needs such as cash for home improvement projects, large expenses, education expenses or to pay for unexpected costs.
Home equity lines of credit (HELOCs) and home equity loans (HELOANs) are two ways to achieve similar ends. But they are different, and understanding how each one works can help you decide whether one or the other might work for you.
What is a home equity line of credit?
A HELOC provides ongoing access to funds. Unlike a conventional loan a HELOC is a revolving line of credit, allowing you to borrow more than once. In that way, it’s like a credit card, except with a HELOC, your home is used as collateral.
- A HELOC has a credit limit and a specified borrowing period, which is typically 10 years. During that time, you can tap into your line of credit to withdraw money (up to your credit limit) when you need it. You use the funds only when you need to, and you can continue to use the funds as you repay them.
- A HELOC can be opened to fund a specific need or can be opened ahead of time so that access to funds is available when needed.
- You only pay interest on the money you use.
- Most HELOCs charge variable interest rates. Those rates are tied to a benchmark interest rate and can adjust up or down.
- You may be able to convert some or all of the balance you owe on a variable-rate HELOC to a fixed-rate loan.
- During the borrowing period, you’ll need to make at least minimum monthly payments on the amount you owe, typically this payment includes portions of principal and interest.
- Once the borrowing period ends, you’ll repay the remaining balance on your HELOC, with interest, just like a regular loan. The repayment period is usually 10 or 20 years.
What is a home equity loan?
A HELOAN resembles a traditional loan. You borrow a specific amount, which is provided as a one-time cash payout at closing, and then you make regular payments during a fixed repayment period.
- With a home equity loan, you apply for the amount you need.
- Most charge a fixed interest rate that doesn’t change during the life of the loan.
- Each payment, the same every month (if it is a fixed-rate HELOAN), includes interest charges and a portion of the loan principal.
How can you use home equity?
Your home may be your most valuable asset, and borrowing against your equity in it could free up cash for any of several purposes. You might use the money to:
- Fund projects, repairs, or pay for large purchases.
- Consolidate what you owe on credit cards or other higher-rate debts into a single loan. Since your home is used as collateral for HELOCs and HELOANs, these loans typically have lower interest rates than other kinds of loans.
- Cover emergency expenses. If you’ve used up the cash in your emergency fund, you could draw on a HELOC to pay for house repairs, medical bills or other unexpected costs.
- Help pay for education tuition and fees. Home equity line or home equity loan interest rates may be lower than rates on college loans.
- The flexibility of a HELOC can make it a great resource for managing cash flow, with quick access to funds and that can be repaid.
Is a home equity line or loan right for you?
Both loans can give access to funds for a specific need. If you know you only need a one-time lump sum of cash, then a HELOAN may be the way to go. Its key advantages are a conventional loan structure and a payment structure that is typically more predictable and easier to navigate. A HELOC gives you the same ability to access funds, with the added benefits of flexibility and readiness. Use it as a tool to finance home improvements or as a financial safety net that’s there when you need it.
With either, the amount you can borrow will depend on the value of your home and the amount of equity you have available. And with both, it’s important to remember that you’re using your home as collateral—and it could be at risk if its value drops or there’s an interruption in your income.
Read Also: HELOC Rates: Banks vs Credit Unions
But if you qualify and your financial situation is stable, a home equity line or a home equity loan could be a helpful, cost-effective tool for making the most of your home’s value.
What are the differences between a HELOC and HELOAN?
| Home equity loan | Home equity line of credit | ||
|---|---|---|---|
| A variable interest rate | N/A | ✓ | |
| A fixed interest rate | ✓ | ✓ (fixed rate loan option) | |
| Cash available at closing | ✓ (lump sum only) | ✓ (up to available credit line) | |
| Draw money as you need it | N/A | ✓ | |
| You only pay interest on the money you use | N/A | ✓ |
Bank of America offers some compelling features for those in the market for a HELOC. Notably, its loan amounts reach up to a generous $1 million, which is considerably higher than what many other lenders might provide. This can be a game-changer for homeowners with substantial equity in their property.
Plus, the option to convert variable-rate HELOCs into fixed-rate loans provides borrowers with added flexibility and predictability. But while these terms are attractive, it’s worth noting that Bank of America doesn’t offer traditional home equity loans. Also, you must close on your loan in person.
When stacked against other lenders, BofA’s HELOC product is certainly competitive, especially for those looking for larger loan amounts. But like all home equity products, you should familiarize yourself with the eligibility requirements to see if it’s the right fit for you.
Overview of Bank of America HELOCs
| Loan limits | $25,000 to $1 million* |
| Loan-to-value (LTV) ratio | 85% |
| Minimum credit score requirements | Not disclosed |
| Repayment terms | 10-year draw period; 20-year repayment period |
| Discounts | Introductory APR for six months0.25% rate discount for autopay from BoA account0.10% to 1.50% initial withdrawal discount0.625% Bank of America Preferred Rewards member discount |
| Fees | No annual fees No application fees No closing costs on loans up to $1 million $450 early closure fee |
When considering a HELOC from Bank of America, it’s essential to weigh the benefits and potential drawbacks. Let’s take a closer look:
Pros
No application or annual fees: Bank of America typically doesn’t charge any application or annual fees for its HELOCs, making it a cost-effective option if you’re looking to leverage your home equity.
Closing costs covered: For lines up to $1 million, Bank of America often covers the closing fees, which can save you a significant amount upfront.
Several discounts: Setting up automatic payments from a Bank of America account can get you a 0.25 rate discount. There are also discounts for making a large initial withdrawal and being a BofA Preferred Rewards member.
Fixed-rate loan conversion available: You have the option to convert part or all of your variable-rate HELOC to a fixed-rate loan during the loan term. This can provide protection against rising interest rates.
Cons
Early closure fee: If you decide to close your HELOC account within three years, there’s typically a $450 termination fee plus any closing costs BofA initially paid for you.
Minimum line amount: The starting line amount for a BofA HELOC is usually $25,000. If your home equity doesn’t cover this, or if you need a smaller amount, this might not be the right loan product for you.
No home equity loans: Rather than offering home equity loans, BofA offers borrowers the option to lock in a fixed rate on part of your HELOC. You can’t get a home equity loan directly as BofA doesn’t offer other equity loan types.
In-person closing required: While BofA offers extensive online services, the final loan closing must be done at a brick-and-mortar location. This might be inconvenient if you prefer entirely digital transactions.
Limitations for non-customers: If you’re not already a Bank of America customer, you might miss out on some perks like additional rate discounts for Preferred Rewards members.
How to Get a Bank of America HELOC
If you’re looking for a jumbo HELOC of up to $1 million, BofA stands out. It’s also a good choice if you’re a current Bank of America customer because you might get preferential rates or reduced fees. Being an existing customer can make the application process smoother, too.
Since Bank of America has financial centers in most states, it’s also a good choice if you like face-to-face interactions or want a physical location to visit. Generally, Bank of America offers competitive interest rates. If your credit score is strong, you could qualify for the best rates.
But if your financial situation makes it hard to meet the criteria for lower rates, or if you’re looking for a smaller, short-term loan, BofA’s HELOC might not be the most cost-effective choice. Its early closure fee of $450 is something to consider if you’re not planning on keeping the HELOC open for long.
Getting a home equity loan with Bank of America can be a streamlined process if you’re prepared with the right documentation. Here’s what to expect:
Application Process
You can apply for a Bank of America HELOC by submitting an online application or visiting a local branch. Be ready with documentation like proof of income, personal identification and information about your home’s value.
After applying, Bank of America will review your details and may require a property appraisal. Generally, the process from application to decision can span several weeks, depending on your circumstances.
Approval and Funding
Once your application is in, you won’t be alone in navigating the next steps. BofA provides lending specialists to guide you throughout the process. These specialists are there to assist, and if you’re interested in having predictable monthly payments over a fixed term, they can also help you explore the fixed-rate loan option.
BofA offers a digital platform where you can securely upload necessary documents. But once you’re approved, you’ll have to close at a physical financial center. You can’t complete the closing process online. After closing, you’ll be able to access your new home equity line of credit whenever you need it.
While the application process may be slower than HELOC lenders like Figure, which can get you funds in as soon as five days, you can speed up the process by making sure all your documents are up to date. Also, promptly respond to any inquiries from the bank. Proactive communication is key for a smooth experience.
Wondering if you meet the eligibility requirements for a Bank of America HELOC? Here’s what to expect:
Credit Score and Financial History
Typically, a credit score in the mid-to-high 600s is required for a Bank of America HELOC, although higher scores can secure better rates. Your financial history, including your credit history, debt-to-income ratio (DTI) and payment history, plays a significant role in eligibility and terms. DTI measures your monthly debt obligations versus your monthly income.
If your credit score isn’t as high as you’d like it to be, you can increase your chances of approval by paying bills on time and reducing your debt balances.
Home Equity and LTV Ratio
Bank of America requires you to have a substantial amount of equity in your home to get approved for a HELOC. It will look at your loan-to-value ratio (LTV) to determine how much equity you have. This ratio is calculated by dividing your mortgage balance by your home’s current appraised value.
A lower LTV indicates higher equity. Typically, Bank of America prefers an LTV ratio of 85% or lower. To meet these requirements, make extra mortgage payments or improve your home to boost its market value. Monitoring the value of your home and your outstanding mortgage balance can help you gauge your LTV ratio.
How Bank of America Compares to Other Lenders
If you’re not sure if Bank of America is right for you, comparing it to other HELOC lenders can help you weigh your options.
Bank of America vs. PNC Bank
Bank of America and PNC Bank are both mortgage lenders with competitive HELOCs. BofA’s HELOC starts with an introductory variable rate for the first six months. Past this period, the base rate varies by state and creditworthiness. Both banks have rate discounts when you set up automated payments from their respective checking accounts.
In terms of eligibility, PNC offers a loan-to-value maximum of up to 89.9% for 1st lien Choice HELOCs and has varying LTV ratios depending on state regulations. Bank of America’s HELOCs go up to $1 million, but the maximum LTV ratio isn’t specified.
Bank of America vs. Navy Federal
If you’re a military member seeking a credit line up to $500,000, Navy Federal might be a better fit. But if you’re eyeing larger loan amounts of up to $1 million and want a lower introductory APR, BofA could be more appealing.
Both institutions waive application and origination fees, a significant cost-saving measure. Navy Federal stands out with a longer draw period of 20 years, double BofA’s 10-year duration. This extended period could benefit those anticipating longer-term, staggered borrowing needs or needing lower monthly payments.
Bank of America vs. Guaranteed Rate
Guaranteed Rate stands out for its impressive speed, approving applications in as little as five minutes, and offers a 100% digital HELOC experience. This makes the process smooth and efficient for borrowers seeking rapid approval. However, while BofA starts with a lower introductory APR, Guaranteed Rate has base APRs that are slightly higher.
In terms of loan limits, BofA offers more substantial HELOCs, allowing borrowing of up to $1 million, whereas the Guaranteed Rate caps its limit at $400,000. BofA doesn’t have any origination fees, while Guaranteed Rate does, which will add to your borrowing costs.
Also, Guaranteed Rate offers a fixed-rate HELOC across the board, so you can always predict your monthly payments. In contrast, BofA has a fixed-rate option that lets you lock in part of your HELOC if you’re wary of fluctuating interest rates.
Finally
Bank of America’s HELOC products stand out, especially for individuals seeking credit sums of up to $1 million. It can be an excellent option to a cash-out refinance. While introductory rates may seem enticing, always plan for a future increase in APR and consider this into your financial planning. Finally, comparing BofA’s HELOC features to your personal requirements will establish whether it is the best solution for you. Don’t hesitate to shop around for the best HELOC rates and conditions.
