See below for HELOC rates available as of November 30, 2023. Loan offers are generally subject to market conditions and can change or disappear at any time without notice. We recommend submitting an application as soon as possible.
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Another option: You may also want to consider a no payment home equity “loan”, which enables you to borrow against your home equity with no monthly payments and no interest charges even if your credit isn’t perfect.
Table of Contents
What is a HELOC and How Does It Work?
A home equity line of credit (HELOC) is a type of home loan used by homeowners to borrow against their home equity on a revolving basis. In other words, you can borrow, repay, and reborrow again as needed similar to how a credit card works.
HELOCs are attractive because of their flexibility. Other home equity loan options require you to borrow the full amount up front even if you don’t need all the money right now. HELOCs allow you to borrow against your available credit on an as-needed basis. This helps keeps your loan balance and interest costs lower.
Homeowners commonly use HELOCs to consolidate high-interest debt, make large purchases, or finance home improvements.
Most HELOCs are structured as second mortgages that go “behind” an existing mortgage, but you don’t need to have an existing mortgage to get a HELOC.
The following are some of the most notable features of a HELOC:
- Revolving credit line. HELOCs work similarly to credit cards in that you can borrow and repay and reborrow again at your convenience.
- Interest-only payments. Most HELOCs have low minimum payments that cover just the interest.
- Loan terms of 20 to 30 years. Loan terms vary from one lender to the next, but HELOCs typically come with loan terms of 20 to 30 years.
- Adjustable rates. Most HELOCs have adjustable interest rates that can change over time.
- Flexible loan amounts. HELOC credit lines can be as small as $10,000 or as large as $250,000, depending on your needs and qualifications.
- Borrow up to 80% of your home’s value. Most HELOCs allow you borrow up to a combined loan-to-value of 80% of the value of your home.
- Initial 10-year draw period. Most HELOCs allow you to draw on the available credit for the first ten years of the loan. Once ten years have passed, the credit line closes and the lender recalculates the payment into a fully amortized payment that pays off the loan balance over the remaining loan term.
What’s the Difference Between a Home Equity Loan and a HELOC?
The terms are often used interchangeably by mortgage professionals and homeowners. Both typically refer to a second mortgage product used to cash out home equity, but they function in different ways.
HELOCs are structured as a credit line that you can borrow from, repay, and borrower from again at your convenience. HELOCs usually have variable interest rates and interest-only payments.
When you take out a home equity loan, you’re required to borrow the full amount at closing even if you don’t need all the money right now. Home equity loans usually feature fixed rates and fully-amortized payments over a loan term of 10 to 20 years.
Potential HELOC Pitfalls
The HELOC is a great loan product, but it can come with some pitfalls as well. Keep in mind that these potential pitfalls don’t make the HELOC a bad loan product. Whether or not it’s risky or bad for you depends on your situation and how you plan to use the money.
Here are some things you’ll want to think about as you evaluate whether a HELOC is the right loan for your needs:
- Variable interest rates. Home equity line of credit rates are usually variable. If interest rates increase, your payment will increase as well.
- Interest-only payments. Payments only cover the interest, which means you aren’t paying down the debt unless you make extra principal payments.
- The more you borrow, the higher your payment. If you increase your principal balance, your payment will increase as well (assuming rates don’t drop drastically).
- Reduced equity. If you owe a large amount on your home, it could be difficult to sell it if home values fall.
- The recast. It can be risky to carry a large HELOC balance until the end of the draw period. Remember, the lender closes out the available credit and recalculates the payment into a fully-amortized payment that pays off the loan over the remaining loan term. This can make your payment double, triple, or even quadruple.
- Prepayment penalties. Prepayment penalties are less common today than in the past, but HELOCs sometimes have them for the first few years of the loan. Be sure to ask about prepayment penalties when you apply for a HELOC.
HELOCs vary from one lender to the next. Other features or requirements could apply that we haven’t covered here. We recommend that you carefully read the entire loan agreement before signing it.
How to Get the Best HELOC Interest Rates
HELOC rates are heavily based on credit scores and home equity. If you want the lowest home equity line of credit rates, you typically need to have good credit and lots of equity in your home.
Debt-to-income ratio sometimes matters as well, but credit scores are usually the most important qualifying factor. Credit scores range from a low of 350 to a high of 850. According to Credit.com, the average credit score in the United States was 711 in 2021. There are five main factors that influence your credit scores:
- Payment history: 35%. It’s very important for your credit scores that you make your payments on time.
- Credit utilization: 30%. If you have high utilization (i.e., you’re “maxed out”) on credit cards, expect your scores to suffer even if you make your payments on time. Keep your utilization below 30% of the credit limit.
- Credit age: 15%. Length of credit history is important. Avoid closing old accounts unless absolutely necessary.
- Credit mix: 10%. Lenders like to see a mix of different types of credit accounts, such as revolving (credit card) accounts and installment loans like mortgages, car loans, etc.
- New credit: 10%. Be careful when applying for new credit cards or loans. Too many new accounts can damage your scores.
How Can I Improve My Credit Scores?
As we’ve covered, HELOC rates depend heavily on credit scores. It’s important to have high credit scores if you want to qualify for the best HELOC rates.
The best way to improve your credit scores is to make your payments on time. As we’ve covered, payment history is the single largest component of the credit score calculation.
It’s also important to avoid overutilizing your revolving credit. High utilization can damage your credit scores even if you make your payments on time. Keep your credit card balances below 30% of the credit limit at all times.
Length of credit history also contributes to good credit scores, but it’s a smaller component of the credit score calculation. If want to close some accounts, we recommend closing your newer accounts first.
Be careful not to open too many new accounts at one time. If you’re shopping aggressively for new loans, it may hurt your credit scores.
Are HELOC rates fixed?
HELOC interest rates are usually variable because HELOCs are structured as revolving credit lines. However, many lenders may offer the option to convert your HELOC to a fixed interest rate at some point in the future.
What are typical HELOC rates now?
HELOC interest rates vary depending qualifications and market conditions. Average HELOC rates are usually within 2-3% of the prime rate.
Is HELOC a good idea now?
A HELOC is always a good idea as long as you’re not overleveraging yourself, you can comfortably handle the payments, and the available funds are used responsibly.