Compare Home Equity Line of Credit Rates and Offers

You can tap equity with a reusable, variable-rate line of credit and only make payments on the balance you charge for a set time. 

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What is a home equity line of credit (HELOC)?

A HELOC is a revolving line of credit secured by your home that initially works like a credit card. You can withdraw money as needed, up to the maximum limit your lender approves, and the monthly payment is based only on the credit you use. After a set time, you’re required to make installment payments to pay off the HELOC balance.

A HELOC is typically a good option to finance ongoing home improvement projects or fill an income gap for self-employed or commissioned earnings.

Home Equity Line of Credit Rates

LOAN AMOUNT APR AS LOW AS

$25,000

4.40%

$50,000

3.65%

$100,000

2.24%

Pros and Cons of a HELOC

Depending on your situation, there may be advantages to getting a home equity line of credit. Advantages include:

  You can tap equity as needed.

  You can pay off balances without closing out the account.

  You can make interest-only payments if your lender offers the option.

  You can deduct mortgage interest from your taxable income if HELOC funds go toward home improvements.

  You’ll make monthly payments based only on the amount you withdraw.

  You’ll likely have a variable rate, which could lead to a higher payment.

  You’re limited to accessing your funds within the draw period, usually up to 10 years.

  You may have to pay annual membership and maintenance fees.

  After the draw period ends, a balloon payment may be due, making the HELOC unaffordable.

  You could lose your home to foreclosure if you can’t repay the credit line.

How a HELOC works

Unlike a traditional fixed-rate mortgage or home equity loan, a HELOC rate is usually variable, you don’t receive funds in a lump sum and you won’t have a set payment at first. Here are six important HELOC features:

  1. The draw period. A set time period (usually 10 years) when you can withdraw money and repay the balance as needed.
  2. Payments during the draw period. Your monthly payment is based on the amount you draw.
  3. Variable rates. Most HELOC rates are based on an index and margin that can change with financial markets during the draw and repayment period.
  4. Interest-only payment option. You might be able to pay only the interest due on the amount you draw each month. However, interest-only payments only last until the draw period ends.
  5. Repayment period. The loan term that begins when the draw period ends, which requires payment of the remaining balance and prohibits any additional credit line withdrawals.
  6. Payments during the repayment period. Any outstanding balance owed at the end of the draw period must be paid in fixed principal and interest installments for the rest of the loan term.

Calculate your home equity

Not sure how much equity you can tap? Here are three key steps to calculating home equity.

  1. Get an estimate of your home’s value. Try an online home value estimator, ask your real estate agent for a price opinion or order a home appraisal.
  2. Check your loan balance. Your monthly mortgage statement provides up-to-date information about your current loan balance.
  3. Subtract your loan balance from your home’s value. The difference between your home’s value and your current mortgage balance is your home’s equity. For example, if your home’s value is $300,000 and your loan balance is $200,000, you have $100,000 in home equity ($300,000 – $200,000 = $100,000).

How are HELOC rates set?

Most HELOC rates are tied to the prime rate, which is a variable interest rate determined by individual banks. Many banks choose to set their prime rates based on the federal funds rate targets set by the Federal Reserve, which makes them more volatile — especially in rising rate environments.

There are a number of factors that determine home equity line of credit rates.

  • Your home equity. The more equity you leave in your home, the better your HELOC rate will be. Borrowing 80% or less of your home’s value is likely to get you lower rates.
  • Your credit score. A 740 score or higher is recommended to get the lowest HELOC rate offered.
  • Your debt-to-income (DTI) ratio. A low DTI ratio, which is a measure of your gross monthly income relative to your monthly debt, will also help drive your HELOC rate down. The less monthly debt you have compared to your income, the better.
  • The index used for interest rate adjustments. You should receive information about how much and how frequently the index (such as the prime rate) might change.
  • The margin used for adjustments. A HELOC margin is a set amount added to your index that determines your HELOC rate. The higher the margin, the more your payment could increase over time.
  • The teaser rate. You may be offered a lower rate for an introductory period. For example, a lender might discount the rate for the first six months. After the teaser rate ends, though, the rate typically increases based on the margin and index in your agreement.
  • The periodic cap. This number tells you how much and how often your rate can change at a given time.
  • The lifetime cap. The cap sets a limit on how high your rate can rise during your HELOC term.
TIP: HOW TO GET A GOOD HELOC RATE 

  • Spruce up your credit score. Keep credit card balances low and pay everything on time before you apply for a HELOC. Lenders typically reward higher credit score borrowers with the best HELOC rates.
  • Borrow less of your home’s value. Your loan-to-value (LTV) ratio measures how much of your home’s value you’re financing. Lower LTVs often come with lower HELOC rates.
  • Shop around. Check out HELOC rates from at least three to five lenders. Your local bank may offer special deals on a HELOC if you tie it to your checking or savings account.

When should you get a HELOC?

Keep in mind that getting a HELOC means you’re using your home as collateral to secure the loan. That means you can lose it to foreclosure if you fail to repay what you owe. Still, it may make sense to take out a HELOC if:

  • You’re planning smaller home improvement projects. You can draw on your credit line for home renovations over time instead of paying for them all at once.
  • You need a cushion for medical expenses. A HELOC gives you an alternative to depleting your cash reserves for unexpectedly hefty medical bills.
  • You need extra funds to manage side-hustle inventory costs. For example, a big influx of customer orders may require a big inventory buy, and a HELOC may help you cover the costs.
  • You’re involved in fix-and-flip real estate ventures. Buying and fixing investment property can drain cash quickly; a HELOC leaves you with more capital to buy other properties.
  • You need to bridge the gap in variable income. A line of credit gives you a financial cushion during sudden drops in commissions or self-employed income.

HELOC vs. home equity loan vs. cash-out refinance

A HELOC isn’t the only way to put your home equity to work. You can also tap equity with a home equity loan or a cash-out refinance. With a home equity loan, you receive your funds in lump sum and make fixed-rate payments for five to 30 years.

If traditional mortgage rates are low, you can borrow more than you currently owe and pocket the difference with a cash-out refinance. Repayment terms are available up to 30 years, and you can qualify with lower credit scores than HELOCs typically allow.

Below is a breakdown of key differences between these equity-tapping home loan options:

A HELOC is a better if: 

  • You want the flexibility to use the credit line and pay it off whenever you want.
  • You want the lowest possible payment on the money you borrow.
  • You have the resources to pay the balance down on a regular basis.
  • You can cover short-term budget gaps if your income becomes unstable.
  • You want to leave your current mortgage alone because the rate is already low.
  • You don’t need all the funds at once.
  • You don’t have an immediate need for the money.

A home equity loan is better if:

  • You have major projects you want to fund and want a set fixed repayment schedule.
  • You want to replace high-interest, variable-rate debt with a fixed-rate loan.
  • You need to finance a large, one-time financial need such as higher education or business startup expenses.
  • You want the long-term stability of a fixed interest rate.

A cash-out refinance is better if:

  • You can get a lower rate than you currently have.
  • Your credit scores aren’t high enough to get a lower HELOC rate.
  • You want to receive the extra cash in one lump sum.

The table below shows the differences between a HELOC, a home equity loan and a cash-out refinance.

Loan feature HELOC Home equity loan Cash-out refinance
Access to equity Use and pay off as needed Receive in one lump sum Receive in one lump sum
Monthly payment Interest-only option to start; based only on the amount drawn Principal and interest based on the total amount borrowed Principal and interest based on the total amount borrowed
Interest rate Typically variable, but fixed options may be available Fixed Fixed but adjustable-rate options available
Ongoing costs Maintenance and membership fees None None
Tax-deductible interest?  Only if funds are used for home improvements Only if funds are used for home improvements Only if funds are used for home improvements
Prepayment penalty?  May apply None None

HELOC FAQs

Yes, if you use the credit line to meet short-term financing goals that will help improve your overall financial picture and you fully understand the repayment terms. Make sure to shop HELOC rates and quotes with multiple lenders.

There may be a slight drop in your score when you apply for a HELOC. However, if you apply with multiple lenders within a 45-day window, the credit checks usually count as one inquiry, according to the Consumer Financial Protection Bureau (CFPB).

You may need a home appraisal, although some lenders may waive the requirement.

Closing costs typically equal 2% to 5% of the total line of credit.

Interest on a HELOC may be deductible if the money you tap is used for home improvement projects.