If you’re among homeowners looking to tap home equity, you may be closely watching home equity line of credit (HELOC) rates (and mortgage refinancing rates). Today’s HELOC rates for a $100,000 credit line held steady, depending on the borrower’s loan-to-value (LTV) ratio.
- 60% LTV: 9.15%
- 80% LTV: 9.32%
- 90% LTV: 10.11%
Today’s HELOC rates
At today’s average HELOC rate of 9.32%, which assumes an 80% LTV, borrowing $100,000 on a 10-year repayment term equates to a $1,284.14 monthly payment. (Our calculation accounts for a 10-year draw period with interest-only payments.)
Here are HELOC rates today, based on varying LTVs and credit lines:
HELOC rate trends
Lenders base interest rates off the prime rate, which is impacted by the Federal Reserve’s handling of the federal funds rate. In recent years, as the Fed has fought economic inflation, the prime rate has climbed and so have HELOC rates.
| Year | Prime rate effective date | Prime rate |
|---|---|---|
2023 | July 27 | 8.50% |
May 4 | 8.25% | |
March 23 | 8.00% | |
February 2 | 7.75% | |
2022 | December 15 | 7.50% |
November 3 | 7.00% | |
September 22 | 6.25% | |
July 28 | 5.50% | |
June 16 | 4.75% | |
May 5 | 4.00% |
Source: JPMorgan Chase & Co.
Understanding HELOC rates
Since a HELOC is secured against your home’s value, the interest rate is typically lower than that of unsecured debt, such as a personal loan or credit card.
HELOCs typically carry variable-rate APRs, so your monthly payment can fluctuate based on the prime rate. Typically, lenders add a margin (or markup) to the prime rate based on your borrower profile to determine your interest rate. The average margin added to the prime rate is about 0.75 percentage points, although margins may range from -1% to 5%. A strong HELOC offer is one with a low margin. To calculate the lender’s margin, subtract the current prime rate from your HELOC rate offer.
Aside from the prime rate, factors determining your HELOC rate include your:
- Credit scores
- Percentage of home equity you aim to borrow
- Debt-to-income ratio
HELOCs come with a “draw period” (usually spanning 10 years) during which you can borrow money against your home equity. With a conventional HELOC, your monthly payments cover a combination of interest-and-principal payments, but you can opt for an “interest-only” HELOC, in which you pay only the interest you accrue until the draw period ends.
On a $50,000 loan with a 10-year draw period at an 8% interest rate, your monthly payments would be about $607. Try free, online HELOC payment calculators to estimate affordability for your situation.
How to choose the best HELOC lender
You can borrow a HELOC from a bank, credit union or online lender. Here’s how to find the best HELOC lender:
Shop around
Aim to get at least three quotes as you compare financing options.
“Shopping around is the most critical component” to finding the best HELOC lender and rate, said David Kimball, CEO of Prosper Marketplace, which offers online peer-to-peer lending.
Consider starting with your local bank or credit union, which might offer an attractive interest rate (or loyalty reward) to keep your business. Also, check online mortgage companies, which tend to offer competitive rates since they have low overhead. And don’t forget to survey websites that aggregate rates from various lenders, Kimball said.
Negotiate rates, terms
Be upfront with lenders that you’re comparing offers, and ask if they can lower rates or fees to match competitors, or if they have discounts available.
Some lenders may offer rate caps, which protect you against rising interest rates for a set period or for the life of the loan. Others may allow you to pay mortgage-like points to get a lower interest rate or offer a discount rate for setting up automatic payments.
Lock in a legitimate lender
Recognize the red flags that signal a dishonest lender. Avoid those that want you to borrow a larger amount than you need or push monthly payments that are larger than you can afford. And be extremely wary of a lender that offers one deal when you apply but rolls out different terms for you to sign.
Tips for getting the best HELOC rate
A low margin is key, but “not all HELOCs are created equal,” said Sarah Alvarez, vice president of mortgage banking at William Raveis Mortgage.
“Some of the better options will offer an introductory rate for the first year, so the interest rate is fixed rather than floating, and they may even cover some closing costs in return for a minimum draw amount or period of keeping the line open,” Alvarez added.
You can pull a few levers to improve your rate offers:
Raise your credit scores
You’ll likely need a score of at least 680 to qualify for a HELOC, but borrowers with scores above 720 are more likely to qualify for a better rate.
If you can delay borrowing to improve your credit, dispute errors on your credit reports (note: some errors can affect your scores but some, like the wrong address, likely won’t have any effect on your scores once fixed) and consider making extra payments on your existing debt or lowering your credit utilization ratio.
A shorter-term fix would be inviting a creditworthy co-applicant to join the HELOC agreement: ideally a co-borrower who’s also listed on your mortgage or a cosigner who’s willing to assume legal responsibility for repayment if you need help.
Lower your debt-to-income (DTI) ratio
Lenders will review your DTI ratio to gauge your ability to manage monthly payments. To calculate your DTI ratio, sum your monthly debt payments and divide by your gross monthly income.
For example, if you owe $500 on your student loans and $1,000 on your credit card each month — and you earn $4,000 in gross monthly income, you would divide $1,500 by $4,000 for a DTI of 37.5%.
Most lenders prefer a DTI ratio under 43%. To lower yours, pay more each month toward your existing debt, postpone large purchases and avoid increasing your debt.
Increase your home equity
Although most lenders will let you borrow up to 85% of your home equity, borrowing less can help you qualify for a better rate. This keeps your combined loan-to-value (CLTV) ratio “for all mortgages on the property lower, so you will also get better rate and program options,” Alvarez said.
Pros and cons of HELOCs
No financial product is perfect for all consumers, so carefully consider these tradeoffs.
| Pros | Cons |
|---|---|
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Alternatives to a HELOC
HELOCs aren’t the only way to tap equity or borrow, so consider the alternatives before rushing to apply.
| Money source | Key benefit | Fine print | Best for… | |
|---|---|---|---|---|
Home equity loan | Borrow against the value of your home. | Using your home as collateral means a lower interest rate. | If you need more money, you must apply for a new loan (as opposed to drawing more from a HELOC). | Funding larger expenses such as home improvements or debt consolidation. |
Home equity-sharing agreement | An investment company provides you with a lump sum of cash in exchange for partial ownership and a share of your home’s future appreciation. | There are no monthly payments or interest charges. | The agreement can reduce your proceeds from a home sale. | Those with poor credit who have trouble qualifying for a loan. |
“Leaseback” (or “rent-back”) agreement | Sell your home to a company and then rent it back. | You don’t pay interest or take on any debt. | You no longer own your home. | Selling but remaining in your home to access a large sum. |
Cash-out refinancing | Replace your existing mortgage with a new mortgage and pocket the difference in cash. | You continue to make just one mortgage payment that won’t fluctuate. | Your new mortgage may take longer to pay off and interest rates may be higher than your current mortgage. | Times when interest rates are lower than the rate on your current mortgage. |
Reverse mortgage | Instead of making a mortgage payment, you receive a payout based on the equity in your home. | No monthly payment. The loan is due when the borrower no longer lives in the home, sells it or dies. | You must be 62 or older. Given your loss of home equity, your heirs could inherit less. | Borrowers over age 62 who own their home outright and don’t mind tapping it as a long-term income source. |
Personal loan/line of credit | You borrow based on your credit (or collateral, in the case of a secured loan), not your home’s equity. | You can continue repaying and borrowing for several years without additional approvals or paperwork. | You could pay a higher interest rate than a loan that uses your home as collateral. | Consumers with solid credit who don’t want to use their home as collateral. |
Credit card | You borrow money from a credit card company. | If you fall victim to fraud or your card is lost or stolen, consumer protections are in place. | You’ll pay a high interest rate if you carry a balance. You may also struggle to find a card that offers a credit limit high enough, depending on your financial needs. | Those who need fast cash but can zero their balance each month. |
Frequently asked questions (FAQs)
A home equity line of credit (HELOC) works like a credit card but uses your home as collateral. A lender approves you for a certain borrowing amount for a set “draw period” during which you can take out as much as you need by writing a check or using a credit card connected to the account. Like a credit card, you can borrow, repay and borrow again.
Unlike a credit card, your HELOC draws on your home’s equity, which increases the amount you owe on your home. Once the draw period expires, you transition into the repayment period, generally over 20 years.
Aim to secure a rate that’s below the national average.
“Anything with a margin around 2% over prime is the prevailing rate — some lenders are offering an introductory fixed-rate period, typically of a year, which is a positive, especially if you think there’s a chance the Fed will continue to raise rates,” Alvarez said.
HELOC costs vary by lender. Some lenders charge an upfront fee while others don’t. You could be charged for a property appraisal, closing costs and submitting an application. Also, check whether the HELOC has a prepayment penalty.
If you’re seeking flexible access to a large sum of money (for a necessary or wealth-building expense) and have equity in your home to draw from, a HELOC could be useful. The caveat is that you must have the credit profile to access low variable rates and have breathing room in your budget to handle a fluid monthly payment.
Although mortgage interest rates surged to a 23-year high in October 2023, HELOCs still offer lower interest rates than some forms of financing like credit cards. Put another way: If you must borrow, a HELOC can be among the safer, more cost-effective options, but it’s not without risks or significant expense.
HELOCs generally have variable interest rates, so the rates and your monthly payments can go up or down over time. Some lenders now offer fixed-rate HELOCS, but the trade-off is likely a higher interest rate.
HELOC interest may be tax-deductible. To get a tax write-off, you’ll need to itemize and follow IRS guidelines that require you to “buy, build or sustainably improve your home that secures the loan.” As always, it’s wise to consult a certified tax professional.
Typically, when you apply to confirm eligibility and check rates, a lender performs a soft inquiry into your credit, which won’t affect your credit scores. But lenders will request your full credit reports (via a “hard” inquiry) when you submit an application, which may trigger a temporary dip in your score.
Once you borrow a HELOC, diversifying your credit mix and building positive payment history should, over time, improve your credit scores.
