A home equity line of credit (HELOC) is a revolving credit line from which you can borrow to achieve personal or financial objectives such as consolidating high-interest debt or funding home renovation projects. To access that equity, you’ll need to own at least 15% to 20% of your home. Because your home serves as collateral for the loan, you may face foreclosure if you are unable to repay your debt.

HELOCs and home equity loans are both excellent solutions for homeowners in need of funds, with lower interest rates than personal loans or credit cards. Unlike fixed-rate home equity loans, HELOCs almost always have a variable rate, which means your interest rate will fluctuate in response to market changes.

Since 2022, HELOC rates have risen substantially in response to a series of interest rate hikes by the Federal Reserve. Average HELOC rates are around 9%, according to data from CNET’s sister site Bankrate. 

The Fed appears to be at the end of its rate-hike cycle, but homeowners will have to wait for lower HELOC rates. The central bank isn’t likely to start cutting interest rates until later this summer, and HELOC rates should remain steady in the meantime.

“As rates start to decline this year, variable-rate products like HELOCs become more attractive as borrowers will be able to benefit from the rate of decreases without the need to refinance,” said Matthew Sanford, administrative vice president of mortgage lending at Skyla Federal Credit Union.

Top HELOC rates

Lender	APR	Introductory APR	Loan amount	HELOC terms	Max LTV
US Bank	8.95% to 13.1%	N/A	$15,000 – $750,000, up to $1 million for properties in California	10-year draw period, unspecified repayment period	80%
TD Bank	8.34% (0.25% TD checking account discount included)	N/A	From $25,000	10-year draw period, 20-year repayment period	89.99%
Connexus Credit Union	From 8.74%	5.99% until Oct. 1, 2024 or 6.49% until Apr. 1, 2025	$5,000 – $200,000	15-year draw period, 15-year repayment period	Not specified
Spring EQ	Fill out application for personalized rates	N/A	$50,000 – $500,000	10-year draw period, 20-year repayment period	90% for home equity loans, not specified for HELOCs
KeyBank	From 11.5% (0.25% KeyBank client discount included)	N/A	From $10,000	15-year draw period, 15-year repayment period	90%
Third Federal	7.49%	N/A	$10,000 – $200,000	10-year draw period, 30-year repayment period	80%
PNC	Fill out application for personalized rates	N/A	$10,000 – $1 million	10-year draw period, 30-year repayment period	89.90%
Frost	9.15% to 18% (0.25% autopay discount included)	N/A	From $8,000	10-year draw period, 20-year repayment period	80%
Regions	9% to 15.875% (Regions client discount included)	N/A	$10,000 – $500,000	10-year draw period, 20-year repayment period	95%
Citizens	From 8.5% (0.25% autopay discount included)	N/A	From $5,000	10-year draw period, 15-year repayment period	80%
BMO Harris	From 8.34% (0.50% autopay discount included)	6.99% for first six months	From $10,000	10-year draw period, 20-year repayment period	80%
Flagstar	9.49% to 21% (0.25% autopay discount included)	N/A	$10,000 – $1 million	10-year draw period, 20-year repayment period	89.99%
Truist	10.1% to 16%	N/A	From $10,000	10-year draw period, 20-year repayment period	85%
Figure	Fill out application for personalized rates	N/A	$15,000 – $400,000	Five, 10, 15 or 30 years	95%
PenFed Credit Union	From 8.625%	N/A	$25,000 – $1 million	10-year draw period, 20-year repayment period	90%

How to Get the Best HELOC Rate

We typically connect house-based finance — mortgages, home equity loans — with fixed interest rates and consistent payments. However, home equity lines of credit (HELOCs) are different: Interest rates on HELOCs are frequently variable, varying with the prime interest rate (or other benchmark rate) plus an additional percentage, or margin, added by your lender.

Obtaining a good starting rate will be heavily dependent on you: your credit score, other loan obligations, and general financial strength. However, just like a credit card, the lender has a lot of freedom in determining the HELOC interest rate.

So, shopping around for a HELOC is crucial — for the most competitive interest rate, obviously, but for other favorable terms and conditions, too. Prepayment penalties, the length of the draw period, minimum draw amounts, interest-only payments, annual fees, “lock-in rate” fees: These factors can significantly impact your overall costs throughout the life of the loan.

1. Maintain good credit

Having a good credit score is one of the key ways to obtain a competitive interest rate when applying for HELOC. A lender will consider your FICO credit score to determine the interest rate. A credit score of 700 or above will most likely qualify you for the best interest rates, though homeowners with a score of as low as 620 might still get approved.

Read Also: HELOCs: Navigating the Pros and Cons in Today’s Economy

There are steps you can take to help improve your credit score when applying for a HELOC. Some of the quickest actions you can take include checking your credit report and disputing any errors, keeping your credit card balances low and making all credit payments on time.

It is also important to be very careful about opening new lines of credit. Your credit score declines slightly every time you open another account.

Having a higher credit score will help you get lower rates, so do what you can to raise it before you apply.

2. Have enough equity

The amount of equity (outright ownership stake) you have in your home determines the size of your home equity line of credit, and it influences the HELOC rate you’re able to get. The more equity you have, the better you look to a lender and the less likely that you’re overloaded with debt against your home.

Having a decent amount of equity also means that you’ll have a lower combined loan-to-value ratio, or CLTV. The CLTV is determined by adding up your current loan balance and your desired line of credit and then dividing by the appraised value of your home. For HELOCs, lenders typically prefer CLTVs below 85 percent.

“Having a significant amount of equity in your home can generally be viewed as lower risk by financial institutions. The more equity you have, the more you own, and the less you owe to your lender,” says Gerald Haynes, mortgage product manager for Georgia’s Own Credit Union in Atlanta. “This can be viewed as lower risk because the borrower has more of a financial stake in the home and is less likely to default on mortgage payments.”

To get an idea of how much home equity you have, find an online estimate for the value of your home and subtract the balance owed on your mortgage. Here’s an example:

• $325,000 (home value) – $215,000 = $110,000 (amount of equity in dollars)
• $110,000 / $325,000 (home value) = 0.338 (33.8 percent equity)

3. Consider different types of lenders

While your current lender may offer you a good deal on a HELOC, don’t stop there. Compare estimates from other players, including national banks, smaller community banks, credit unions and online mortgage lenders. Each type of lender has its own advantages.

For instance, online lenders generally have lower operating costs, which can allow them to offer you lower interest rates, while local banks and credit unions may have a better understanding of your local market and offer you more personalized service — especially if you already do business at that institution. To get the best HELOC rate, try to get at least three quotes when considering your options.

Your local bank or credit union is a great place to start looking for a HELOC, but it’s always best to compare rates from at least a few lenders to make sure you’re getting the most competitive terms.

4. Understand introductory rates

When you think you’ve found a great HELOC rate, find out how long it will last and how it might change over time. A HELOC typically comes with an adjustable rate during the initial draw period that fluctuates in sync with the prime rate or other benchmark index. However, some lenders may offer you a fixed introductory rate, sometimes called a teaser rate.

“Some lenders offer very attractive introductory rates for the first six to 12 months only to increase it meaningfully after that period,” says Vikram Gupta, executive vice president and head of home equity for PNC Bank.

Find out how long your introductory rate will last and what your rate will be after that period ends — especially if you’re planning to withdraw funds over several years. A lower rate during a yearlong introductory period may not be worth it if your rate skyrockets.

Know how and when your HELOC interest rate might change during the draw and repayment periods.

5. Look for rate caps

Some HELOCs offer rate caps as a safeguard against rising interest rates. If you select a HELOC with a low rate cap, you’re protected from paying more than that maximum, even if the prime rate spikes. If there is no cap, you run the risk of your interest rate pushing your monthly payment beyond what you can afford.

A low rate cap protects you against a market of rising interest rates.

6. Factor in fees

While obtaining a low interest rate is important, the fees associated with a HELOC also play a big factor in your final cost.

Some lenders charge upfront fees, third-party fees or an annual fee. They may also require you to draw a minimum amount of credit to avoid a fee or charge inactivity fees, which can negate any benefit you may receive from a low HELOC rate.

Get documentation for each quote you receive, including the associated interest and all rate fees so you can compare your options side by side. It’s important to evaluate the total, long-term cost of each loan offer. And when evaluating costs, remember, some loans – even with fees – may still end up having a lower overall cost.

For instance, some lenders may charge a fee to lock in a fixed interest rate, but you could pay less out-of-pocket over the life of the loan with a fixed rate HELOC, rather than a variable-rate variety (see tip number nine, below).

When comparing lenders be sure to consider any relevant fees, as well as the interest rate, in order to get a true picture of the total cost of the loan. Remember, some loans with fees may still end up costing you less overall.

7. Watch out for balloon payments

Getting a low monthly rate may seem like the most important factor when choosing a HELOC, but sometimes those low rates come at the expense of a balloon payment. A HELOC with a balloon payment requires you to pay off your remaining balance in a lump sum at the end of your term — a potentially huge payment if you’re not prepared for it.

“Balloon payments are often associated with loans that have a shorter repayment period, where a portion of the borrowed amount is due as a lump-sum payment at the end of the loan term,” says Haynes. “Applicants should be aware that balloon payments can be risky because they require a large payment at the end of the loan term, which can be challenging to manage.”

If you are unable to make the balloon payment for some reason, you may be forced to refinance the loan or even sell your property entirely in order to cover the payment.

A low rate may not be worth it if the trade-off is a huge balloon payment at the end of your term.

8. Choose shorter draw and repayment periods

Many lenders have only one set of HELOC terms, but some lenders may let you choose the length of your draw period and the repayment period. Opting for a shorter repayment term can decrease the amount of interest you pay.

In addition, you may score a better interest rate if you select a shorter repayment timeline. Check with different lenders to see if changing the length of the draw or repayment periods is a possibility.

Shorter draw periods and repayment periods pose less risk to the lender; because of this, you may be offered lower interest rates if you have the option to choose shorter terms.

9. Look for fixed-rate options

More and more lenders are offering the option to convert some or all of your HELOC balance into a fixed-rate loan for a set period of time, sometimes without a fee. This is a good option if you want to lock in the interest rate without worrying about potential fluctuations in the market.

“Fixing the rate protects the consumer from rate increases and payment increases,” says Mark Worthington, manager with online lender Churchill Mortgage.

If you feel interest rates are going to rise before you have the ability to pay off the HELOC, then obtaining a fixed rate can provide some comfort and security, says Worthington.

However, a longer period with a fixed interest rate could mean a higher interest rate. And the strategy could backfire if interest rates start dramatically declining.

If interest rates are low, fixed-rate options during the draw period could be a selling point. Even if the lock comes with a fee, it may be worth it to avoid future rising rates.

10. Take advantage of discounts

If you have an existing relationship with a bank or credit union, you may qualify for member discounts on your HELOC rate. Many lenders also offer rate discounts for setting up automatic payments. You should still talk to multiple lenders, though, as the best deal isn’t always with a bank you already have a relationship with.

Autopay or member discounts are possible ways to lower the APR on your HELOC, so look for ways to save wherever you can.

Like other interest rates, HELOC rates climbed steadily in 2023, spiking to double digits at the end of the year. But in 2024, HELOC rates are expected to decline, potentially reaching an average of 8.45 percent by year-end compared to 10.12 percent in December 2023, according to Bankrate’s chief economist, Greg McBride.

The primary driver for this anticipated decrease in HELOC rates is the Federal Reserve’s easing its war on inflation. “A decline in HELOC rates will be spurred primarily by Fed rate cuts,” says McBride, “but declining mortgage rates and ongoing economic growth will bring about more introductory rate offers on HELOCs, so the average HELOC rate will be down more substantially than two Fed rate cuts would indicate.”

However, the timeline and extent of HELOC rate declines will depend on various factors, including economic data and the Fed’s actual actions. “The Federal Reserve has stopped raising interest rates and is signaling it intends to reduce its benchmark rate in the coming months,” observes Mark Hamrick, Bankrate’s senior economic analyst. “Even so, the magnitude and timing of those potential moves are uncertain. Borrowing rates may have peaked, but they could remain high for longer depending on the future paths of the economy and inflation.”

As a result, it is essential to stay informed about market trends, economic indicators, and potential changes to the Federal Reserve’s monetary policy decisions. Borrowers should be prepared for fluctuations and shop around for competitive rates.

Bottom line

A HELOC can be a useful way to cover large or unexpected expenses. Even with the continued rate hikes, in many cases, HELOCs will still be a better bet than credit cards and even home equity loans (though the interest-rate gap between the two has closed in the last year). But in the current economic environment, it’s more important than ever to do your due diligence before choosing a lender.

As you shop around, remember that there are steps you can take to reduce the amount of interest you pay over the life of the loan including considering different types of lenders, opting for shorter draw periods, locking in rate caps and taking advantage of discounts.

It’s also a good idea to work on improving your credit score in order to qualify for the best offers, ideally several months before you apply. That’s a strategy for all seasons, no matter what the current interest-rate climate is like.