Best Home Equity Line of Credit Rates (HELOC)

This Page Was Last Updated: August 29, 2022
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A HELOC is the most flexible way to borrow from your home equity. You can use the line of credit for debt consolidation, home improvements, investments, or other major purchases. The best part is that you don't need to pay interest on unused amounts. This is why many Americans open a HELOC as an emergency fund. We've gathered some of the best HELOC rates around the country to help you find the lowest rate available.

Best HELOC Interest Rates

LenderHELOC Rates (APR)Min. Credit ScoreMax. CLTV
Bank of America
Variable Rate: Starting at 7.4%Not Specified80%
US Bank
Variable Rate: 6.45% to 10.85%Not SpecifiedNot Specified
PenFed
Variable Rate: Starting at 9.50%70080%
PNC
Variable Rate: 7.72% to 8.72%
Fixed Rate: 9.44% to 10.44%
65084.9%
TD
Variable Rate: 6.34% to 10.69%740Not Specified
Navy Federal
Variable Rate: 6.75% to 18.00%Not Specified95%
BECU
Variable Rate: 5.99% to 8.84%
Fixed Rate: Starting at 5.74%
Not SpecifiedNot Specified
Chase
Two years after suspending HELOC applications, Chase is considering offering them again.
Wells Fargo
Due to current market conditions, Wells Fargo has temporarily suspended new applications for HELOCs.

Last updated September 26, 2022. Rates are for informational purposes only.

What You Should Know

  • HELOCs are the most flexible way to borrow against your home for a low interest rate.
  • You are able to withdraw and repay as needed, up to your maximum credit limit.
  • You can use the cash for anything.
  • If you frequently miss payments, your home could be foreclosed.

Pros and Cons of HELOCs

ProsNeutralCons
  • Low interest rates
  • Low closing costs
  • Fast processing time
  • Potential tax breaks
  • Flexible withdrawals and repayments
  • Typically variable interest rates
  • Potential home foreclosure with missed payments
  • Possible fees and closing costs

While a HELOC may offer more flexible repayment terms than a home equity loan, it also comes with additional risks. Your home secures the loan, so if you fail to make payments, your home could be foreclosed on. Additionally, HELOCs typically have variable interest rates, which means your monthly HELOC payments could go up or down depending on market conditions.

Before taking out a HELOC, ensure you understand the risks and have a plan to repay the loan. If used responsibly, a HELOC can be a helpful tool for consolidating debt or funding significant purchases.

HELOC Loan Explained

HELOC

A HELOC has similar characteristics to a credit card; however, it's attached to your home. As with a credit card, you have a maximum borrowing limit. You can withdraw and repay from your HELOC so long as you don't exceed the borrowing limit. You also don't accrue interest on unborrowed amounts.

The HELOC is secured by your home and acts as a second mortgage in addition to your first mortgage. You can borrow up to 85% of the combined loan-to-value between the two mortgages. This means your primary mortgage balance and HELOC limit can't exceed more than 85% of your property value. For example, if your home is valued at $1,000,000 with a $750,000 mortgage balance, you could qualify for a $100,000 HELOC.

Some HELOCs offer a lower promotional rate if you initially withdraw a minimum amount. For example, if you withdraw $20,000 from your HELOC, you will have a lower interest rate for a specified timeframe. After withdrawing $20,000, your remaining limit will be $80,000. You'll only be charged interest on the withdrawn amount, not the total limit. You can choose to make interest-only payments or pay back the principal and interest. If you repay the $20,000, you'll be eligible to withdraw up to $100,000 again.

HELOCs have two phases; a withdrawal and repayment phase. The withdrawal phase lasts five to 10 years. During this phase, you can make withdrawals and repayments as necessary. After the withdrawal phase ends, you'll enter the repayment phase, where you'll have 15 to 20 years to repay any outstanding balance. You can't continue to make withdrawals in the repayment phase.

While a HELOC may offer more flexible repayment terms than a home equity loan, it also comes with additional risks. Your home secures the loan, so if you fail to make payments, your home could be foreclosed on. Additionally, HELOCs typically have variable interest rates, which means your monthly payments could go up or down depending on market conditions.

Before taking out a HELOC, ensure you understand the risks and have a plan to repay the loan. If used responsibly, a HELOC can be a helpful tool for consolidating debt or funding significant purchases.

Tip: How to use a HELOC

A home equity line of credit is a great way to finance major expenses. Some popular uses for the money include:

HELOC Characteristics

Variable vs. Fixed-Rate HELOCs

HELOCs can have either a variable or fixed interest rate. Most HELOCs are variable rates, but in some cases, you can find a fixed rate.

A variable-rate HELOC means your interest rate will fluctuate with the prime rate. The prime rate is the lending rate banks charge their most creditworthy customers. Your HELOC rate and payment will increase when the prime rate goes up. Sometimes, variable-rate HELOCs offer more flexibility because you can lock in a fixed rate when the prime rate is low.

A fixed-rate HELOC means your interest rate and payment will remain the same for the loan term, typically 5 to 10 years. Usually, your payment will convert to a variable rate after the term ends. Fixed-rate HELOCs offer predictability, but you may miss out on lower rates if the prime rate declines.

Draw Period vs. Repayment Period

A HELOC has two phases: the draw and repayment period. The draw period is when you can borrow from your line of credit. This is typically 5 to 10 years. The repayment period is when you must repay the loan. This is typically 20 years.

You will only be required to make interest payments on the borrowed amount during the draw period. You can make minimum payments or pay off your loan balance in full at any time without penalty.

Once the draw period ends, the repayment period begins. You must make principal and interest payments on the entire loan balance during the repayment period. You will no longer be able to withdraw from the HELOC.

Annual Percentage Rate (APR)

The annual percentage rate (APR) is the total cost of borrowing money, expressed as a percentage. It includes the interest rate plus any fees charged by the lender. The APR is a helpful way to compare different loans because it considers the interest rate and fees.

For example, let's say two lenders offer HELOCs with the same interest rate but different fees. Lender A has an origination fee of 1%, and Lender B has an origination fee of 2%. Comparing the interest rate will not show the actual cost of borrowing so that both lenders will look equal. However, when you factor in total costs, Lender B has a higher APR than Lender A.

Loan Amount

Your loan amount is the maximum HELOC you can get. It's typically a percentage of your home's appraised value minus any outstanding mortgage balance. For example, if your home is valued at $200,000 and you have an outstanding mortgage balance of $100,000, you may be able to borrow up to $50,000.

The amount you're eligible to borrow depends on your lender, the value of your home, and your outstanding mortgage balance. Some lenders also offer programs that allow you to borrow more than your loan limit. However, these loans typically have higher interest rates and fees.

Maximum Combined Loan to Value (CLTV)

The Combined Loan to Value (CLTV) ratio limits your maximum loan amount. The CLTV is the total of all loans secured by your home divided by your home's appraised value. For example, if you have an $800,000 home with a $500,000 mortgage, your LTV would be 62.5%. Considering most lenders require a CLTV of 80% or less, you could receive a maximum HELOC of 17.5%, or $140,000.

HELOC Alternatives

HELOCHome Equity LoanCash-Out RefinanceReverse Mortgage
Interest RatesLowHigherLowestHighest
Fees (as percentage of loan)2% to 5%2% to 5%3% to 5%~5%
PaymentsInterest only, principal + interestPrincipal + interestPrincipal + interestNone until home is sold
Fixed vs. Variable RatesTypically variableBothBothBoth

HELOC vs. Home Equity Loan

A HELOC is a revolving line of credit, which means you can borrow up to your loan limit and make payments as often as you want. You'll only be required to make interest payments on the borrowed amount. A home equity loan is a lump sum loan with a fixed interest rate and repayment term. You'll receive the entire loan amount at closing and make equal monthly payments over the life of the loan.

  • Interest Rates: HELOCs typically have lower interest rates than home equity loans. However, home equity loans offer predictability because you'll know exactly how much you're borrowing and what your payments will be.
  • Fees: HELOCs typically have lower fees than home equity loans. However, home equity loans may offer the option to waive fees.
  • Payments: With a HELOC, you can make minimum payments or pay off your loan balance in full at any time without penalty. With a home equity loan, you'll be required to make equal monthly payments over the life of the loan.
  • Fixed vs. Variable Rates: HELOCs typically have variable interest rates, while home equity loans have fixed interest rates. This means your monthly payments could increase or decrease with a HELOC while staying the same with a home equity loan.

HELOC vs. Cash-Out Refinancing

A cash-out refinance is a new loan that pays off your old mortgage and gives you cash to use as you need it. You receive the funding as a lump sum and must begin paying interest immediately. HELOCs allow you to borrow up to your loan limit and make payments as often as possible.

  • Interest Rates: Cash-out refinancing typically has a lower interest rate than HELOCs because it's a new mortgage. However, cash-out refinancing also has closing costs, while some HELOC lenders will cover costs if you withdraw a certain amount.
  • Fees: HELOCs typically have lower fees than cash-out refinancing.
  • Payments: With a cash-out refinance, you'll make payments on principal plus interest. With a HELOC, you can make interest-only or principal and interest payments as often as you want.
  • Fixed vs. Variable Rate: HELOCs typically have variable interest rates, while cash-out refinancing can have either.

HELOC vs. Reverse Mortgage

A reverse mortgage provides you with funding repaid when you sell your home or die. While you won't need to make monthly payments, your financing will accrue at the reverse mortgage interest rate.

HELOCs are revolving lines of credit, which means you can borrow up to your loan limit and make payments as often as you want.

  • Interest Rates: Reverse mortgages typically have higher interest rates than HELOCs
  • Fees: HELOCs typically have lower fees than reverse mortgages.
  • Payments: With a HELOC, you'll only be required to make interest payments on the borrowed amount. With a reverse mortgage, you won't need to make any payments until you sell your home or move.
  • Fixed vs. Variable Rate: HELOCs typically have variable interest rates, while reverse mortgages can have fixed or variable interest rates.

HELOC Rules and Regulations

The most important lender rule to understand is the maximum loan-to-value (LTV) ratio. The LTV ratio is the amount of your HELOC divided by your home's value. For example, if you have a $100,000 HELOC on a home worth $200,000, your LTV ratio would be 50%.

The maximum LTV ratio for a HELOC is typically 80% to 85%. This means your HELOC balance can't exceed 85% of your home's value. In the example above, the maximum loan amount would be $170,000. If you have a first mortgage with a balance of $150,000, your combined loan-to-value ratio would be 75%, which is below the maximum.

Another essential regulation to be aware of is the draw period. The draw period is usually 5 to 10 years. This is the time when you can borrow from your HELOC. Once the draw period ends, you can no longer borrow from your line of credit. You will only be required to make interest payments during the draw period.

Once the draw period ends, the repayment period begins. The repayment period is usually 20 years. You must make principal and interest payments on the entire loan balance during the repayment period.

HELOC Terminology

TermDefinition
Credit lineThis is the maximum amount you're approved to borrow. You can withdraw any amount up to your credit line.
Minimum paymentThis is the minimum amount you must pay each month. This will usually only cover the interest you've accrued.
Draw periodThis is when you can borrow from your HELOC.
Repayment periodThis is the period when you must repay the loan.
Variable interest rateThis is an interest rate that fluctuates with the prime rate.
Fixed interest rateThis is an interest rate that remains the same for the loan term.
Debt service ratioThis measures your ability to make payments on your debts. It's calculated by dividing your monthly debt payments by your monthly income.
Combined loan-to-value (CLTV) ratioThis is the ratio of your combined loan balances to your home's value.

How to Apply For a HELOC

You can apply for a HELOC in person or online. If you prefer in person, you can begin the application process by visiting your local bank, credit union, or mortgage broker. This section will explain how to apply for a HELOC in five steps.

  1. Ensure you are eligible: To be eligible for a HELOC, you must have equity in your home. You will also need a good credit score and a low debt-to-income ratio.
  2. Gather the required documents: When you apply for a HELOC, you must provide documentation verifying your employment, income, debts, and assets. You will also need to provide your most recent tax return.
  3. Compare offers: Once you've gathered the required documents, you can begin shopping for the best HELOC offer. Be sure to compare interest rates, fees, and terms.
  4. Apply: You can begin the application process when you've found the right offer. This can be done online, over the phone, or in person. You can also apply for a HELOC by visiting your local bank, credit union, or mortgage broker.
  5. Close on your loan: Once approved for a HELOC, you will need to sign the loan agreement and provide any additional documentation that may be required.

HELOC Interest Rate Factors

Your HELOC rate is typically a variable rate spread on top of your bank's prime rate. Your interest rate will change by the same amount whenever the prime rate changes. In addition to the prime rate, your creditworthiness determines a spread. The spread could operate as the prime rate plus 2%, or even prime rate -1% for creditworthy clients. This section will explain the factors affecting your HELOC interest rate.

  • The prime rate: As we noted, your interest rate is based on the prime rate. The prime rate is the interest rate banks charge their most creditworthy clients. Your HELOC rate will do the same whenever this goes up or down.
  • Your credit score: Your credit score is one of the most significant factors affecting your interest rate. The higher your credit score, the lower your interest rate will be.
  • Your debt-to-income ratio: This is a measure of how much debt you have compared to your income. A high DTI ratio indicates that you may have difficulty making monthly payments. This will cause your interest rate to be higher.
  • Your loan-to-value ratio: This is the ratio of your loan balance to the value of your home. A high LTV ratio indicates that you have a high amount of debt relative to the value of your home. This will cause your interest rate to be higher.

The Bottom Line

A HELOC can be a great way to access the equity in your home. It can allow you to pay for significant expenses, such as home renovations or a child's education. However, it's essential to understand how a HELOC works before you apply for one. This guide has provided you with everything you need to know about HELOCs and where to find the best rates.

Any calculators or content on this page is provided for general information purposes only. Casaplorer does not guarantee the accuracy of information shown and is not responsible for any consequences of its use.