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HELOC interest rates
Where to find the lowest rates on your home equity line of credit.
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A home equity line of credit, or HELOC, lets you borrow against the value of your home. Like any loan, interest accumulates over time and the best rates are reserved for those with a healthy financial track record — though there are ways to boost your standing.
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Compare current HELOC rates
Since January 2019, the national average HELOC interest rate has ranged between 6.71% and 6.78%. Your rate varies depending on factors like market fluctuations, your credit history and the lender.
How can I get the best HELOC rates?
The HELOC rate your bank or credit union offers is based partly on your personal financial history. To get the lowest possible rate, consider:
- Improving your credit score. Since your credit rating is an indicator of the risk you pose as a borrower, improving your score can mean better rates. Avoid raising financial red flags before you apply for a HELOC — like closing or opening credit cards — and do your best to pay off any outstanding bills.
- Building more home equity. If HELOC interest rates seem too high now, consider paying more toward your mortgage or waiting until your equity has increased. More equity equals less outstanding debt, which makes you more appealing in the eyes of lenders.
- Comparing lenders. Don’t limit your search to major banks. Shop around to see what else is out there, including online banks, local banks and credit unions. Look for introductory offers and discounts.
- Scouting rate caps. Unless you have a fixed-rate HELOC, most rates fluctuate with the market. But a cap can guarantee that it won’t rise beyond a certain point. Keep an eye on rate caps to make sure you don’t have any surprises down the road.
- Requesting quotes. Don’t be afraid to ask lenders for a quote. You should be able to get this figure obligation-free.
How do HELOC interest rates work?
You can spend your HELOC funds as you see fit — up to a certain amount — and timely repayments will help keep accumulated interest in check.
The overall timeline is divided into two parts:
- Draw periodThe draw period typically lasts for about five to 10 years and is when you’d be borrowing from the line of credit to fund a major expense. During this time, most lenders will let you make interest-only payments.
- Repayment periodThe repayment period is the time for paying off the principal and interest. It tends to last around 10 to 20 years.
What credit score do I need?To get the best HELOC interest rates, you’ll likely need a score of 740 or higher, which counts as “very good” on the FICO scale. If you fall into the “good” range at 670 to 739 or above, you should still get decent rates.
Can a HELOC interest rate change over time?
Yes. Two factors come into play here: the nationwide prime rate and the lender’s margin. The prime rate changes in response to fluctuations in the federal funds rate. The margin is unique to each borrower.
Think of the prime rate as a starting point. At the time of writing, the national prime is 5.5%. If your HELOC interest rate is 6.75%, that means the lender added a margin of 1.25%. If the prime rate rises 1% over the course of a year, it’s likely that your HELOC interest rate will change accordingly.
Case study: Leah's experience
Leah Fallon
Copy Editor
Last year, my spouse and I took out a HELOC to finish our basement and pay off debt. Our home value has gone up since we bought our house, and so we had enough equity for a $45,000 loan. Our lender gave us a deal of 3% APR with interest-only payments in the first year. In the second year, however, the APR skyrocketed to 6% variable rate. Making our first payment after the APR increase, we realized we had to do something to free up cash.
We contacted our mortgage broker about a cashout refinance. That’s when a lender allows you to refinance your mortgage for more than you owe on your home, forwarding the difference to you as cash. We used our cashout to pay off our HELOC and pay down credit card debt. Our monthly payments went up by about $100, but we could easily work that into our budget.
I worried about borrowing money from our mortgage — that we might not get back what our house is worth if we want to sell. But we agreed we’d stay in our home for at least 10 more years. And we’re crossing our fingers that values continue to rise as our region grows.
The financial benefit is huge for us: We skipped a month of paying our mortgage and got a check for the extra money in escrow when we switched lenders. And paying off our HELOC and credit card debt has already increased our credit score by 60 points.
How high can HELOC interest rates increase?
Last year, the prime rate rose from 4.75% to 5.50%. Throughout the course of a 15- or 20-year HELOC, rates could rise or fall significantly, depending on the market.
To help protect yourself against changes in the market over time, talk to your lender about instituting a rate cap. This designates the maximum interest rate you’d ever have to pay on the loan, regardless of how the prime rate fluctuates.
Bottom line
HELOC interest rates live and breathe by the market, so your best chance at getting a good one is shopping around to see what lenders are offering and paying attention to the fine print before signing the dotted line.
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