Josh PatokaMortgages Writer
Having lived in several states, owning primary residences and investment properties, Josh Patoka uses his experience using mortgages and HELOCs to help first-time home buyers and home owners find the best home loan for their financial goals. His work has been featured on several financial and media websites.
Josh Patoka
Josh PatokaMortgages Writer
Having lived in several states, owning primary residences and investment properties, Josh Patoka uses his experience using mortgages and HELOCs to help first-time home buyers and home owners find the best home loan for their financial goals. His work has been featured on several financial and media websites.
Mortgages Writer
Chris JenningsDeputy Editor, Loans & Mortgages
Chris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a number of outlets, including Yahoo Finance, MSN, Fox Business, and GOBankingRates.
Reviewed
Chris Jennings
Chris JenningsDeputy Editor, Loans & Mortgages
Chris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a number of outlets, including Yahoo Finance, MSN, Fox Business, and GOBankingRates.
Deputy Editor, Loans & Mortgages
Reviewed
Updated: Jun 19, 2024, 8:27am
Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.
With home prices elevated, it might be a good time to tap your home equity and use those funds to upgrade your house or consolidate high-interest debt. One way to do this is through a home equity line of credit, or HELOC, which allows you to borrow against the value in your home and repay the money, plus interest. Before getting a HELOC, shop rates and costs to make sure it’s the best loan option for you.
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New American Funding
Minimum credit score
640
620 with a 65% LTV
HELOC Loan Rates
Lower than the national average
Days to close
Approval may be granted in five minutes but is ultimately subject to verification of income and employment, as well as verification that your property is in at least average condition with a property condition report. Five business day funding timeline assumes closing the loan with our remote online notary. Funding timelines may be longer for loans secured by properties located in counties that do not permit recording of e-signatures or that otherwise require an in-person closing.
5 days
On New American Funding's Website
640
620 with a 65% LTV
Lower than the national average
Approval may be granted in five minutes but is ultimately subject to verification of income and employment, as well as verification that your property is in at least average condition with a property condition report. Five business day funding timeline assumes closing the loan with our remote online notary. Funding timelines may be longer for loans secured by properties located in counties that do not permit recording of e-signatures or that otherwise require an in-person closing.
5 days
Best HELOCs with Low Rates
The average HELOC rate today ranges between 8% and 10%. When compiling our list of best HELOC options, we took into account various factors, with the APR being one of the key considerations. However, it wasn’t the sole determinant. Here is a summary of our top HELOC choices:
- Citizens: APRs starting at 8.50%
- Fifth Third Bank: APRs starting at 8.50%
- Connexus Credit Union: APRs starting at 8.74%
- Alliant Credit Union: APRs starting at 8.75%
- U.S. Bank: APRs starting at 8.95%
Best for fast closing
Citizens
Compare rates from participating lenders in your area via Bankrate.com
8.50%
$17,500 to $400,000
Does not publicly disclose
Editor's Take
We picked Citizens Bank Mortgage for its lightning-quick HELOC closing time—as few as seven days with account activation occurring five business days after closing—on top of not charging an application fee or closing costs.
Pros & Cons
- Close in as few as seven days
- No application fee or closing costs
- 0.25% interest rate discount for borrowers who automatically pay from a Citizens checking account
- Not available in all states
- Doesn’t disclose credit requirements
Lender Details
Loan terms
Citizens offers HELOCs with loan amounts starting at $17,500; however, you must have a credit line of more than $200,000 to get the lowest annual percentage rate (APR) available. The draw period is for 10 years, and the repayment period is 15 years. There are no fees, and some discounts are available, including for Citizens checking account customers. A $50 annual fee is waived during the first year of financing.
Available in select states
Citizens’ HELOCs are available only in Connecticut, Delaware, Florida, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia and Washington, D.C.
How to apply
Borrowers can apply online, in person or by phone. Customer support by phone is available from Monday to Friday, 7 a.m. to 10 p.m. ET, and Saturday to Sunday 9 a.m. to 6 p.m. ET.
Best for Rate Lock Flexibility
Fifth Third Bank
Compare rates from participating lenders in your area via Bankrate.com
8.50%
$10,000 to $500,000
660
Editor's Take
We picked Fifth Third Bank Mortgage for its unique rate-lock feature that allows borrowers to lock in a rate on any amount for a $95 fee. The bank allows up to three rate locks on three separate balances at a time, and you can unlock the rates at any time, free of charge. This flexible feature is particularly useful in a volatile rate environment.
Pros & Cons
- Offers a unique rate-lock option, which helps in a volatile rate environment
- Homeowners can access up to 90% of their home’s equity
- No closing costs
- Bank did not disclose its loan closing timelines
- Only available in 11 states
Lender Details
Loan terms
Fifth Third offers HELOCs from $10,000 to $500,000. The HELOC has a 30-year term, beginning with a 10-year draw period where you only pay interest. After that, there is a 20-year repayment period where you pay the outstanding balance, plus interest.
Available in select states
Fifth Third’s HELOCs are available in the following 11 states:
- Ohio
- Florida
- Georgia
- Illinois
- Indiana
- Kentucky
- Michigan
- North Carolina
- South Carolina
- Tennessee
- West Virginia
How to apply
You can fill out a lead form online, but you will need to meet with a Fifth Third Bank representative in person or speak to one over the phone to complete the HELOC application. Customer support by phone is available Monday through Friday, 8 a.m. to 6 p.m. ET and Saturday 10 a.m. to 4 p.m. ET. Fifth Third is closed on Sundays.
Best for low introductory rates
Connexus Credit Union
Compare rates from participating lenders in your area via Bankrate.com
8.74%
$5,000 to $200,000
Does not publicly disclose
Editor's Take
We picked Connexus for its fast HELOC application response times. Within 24 hours of applying, a Connexus personal lender will reach out to start the process. The lender says its home equity applications can be processed entirely online in just minutes and don’t require a home appraisal, saving you even more time.
Pros & Cons
- Low introductory APR
- Can process most applications online in minutes
- No home appraisal required
- Must become a member to access its loan products
- Connexus does not offer HELOCs in some states
Lender Details
Loan terms
You must borrow at least $5,000 to receive the promotional APR. Connexus HELOCs have a 15-year draw period and then a 15-year repayment period. The minimum payment requirement is 1.5% of the amount borrowed (a $25 minimum).
Available in most states
Connexus’ home equity products are not available in Alaska, Hawaii, Maryland or Texas.
How to apply
Borrowers can start the application process online, and Connexus says most applications can be completed entirely online. Customer support by phone is available Monday, Tuesday, Wednesday and Friday from 7 a.m. to 7 p.m. CT; Thursday from 9 a.m. to 7 p.m. CT; and Saturday from 8 a.m. to 1 p.m. CT.
Best no-fee HELOC lender
Alliant Credit Union
Compare rates from participating lenders in your area via Bankrate.com
8.75%
Starting at $10,000
620
Editor's Take
We picked Alliant for waiving the application fee, appraisal fee and closing costs on its HELOCs up to $250,000. This is a generous amount compared to other lenders we analyzed.
Pros & Cons
- No closing costs or fees on HELOCs up to $250,000
- Interest rates are still low, even for borrowers with lower credit scores
- Online application process
- Not available in all states
Lender Details
Loan terms
Alliant offers HELOCs as low as $10,000 (or $25,000 for residents in Wisconsin and Washington, D.C.) and up to $250,000 in order to get certain closing costs waived. Terms range from 15 to 30 years.
Not available nationwide
Alliant says its HELOCs are available in most states.
How to apply
Borrowers can start the application online. Customer support by phone is available Monday through Saturday 7 a.m. ET to midnight ET, and Sunday 9 a.m. to midnight ET.
Best for large HELOC amounts
U.S. Bank
Compare rates from participating lenders in your area via Bankrate.com
8.95%
$15,000 to $1,000,000
660
Editor's Take
We picked U.S. Bank Mortgage for its generous HELOC amounts from $15,000 to $750,000, and up to $1 million for California properties. This makes the bank a great option for borrowers seeking large line of credit amounts. The draw period for a U.S. Bank HELOC is 10 years. During this period, you can convert any outstanding balances into a fixed rate.
Pros & Cons
- High loan amounts
- Fixed-rate option
- HELOCs do not have closing costs
- Borrowers cannot complete an application entirely online
- Higher APRs than some competitors
Lender Details
Loan terms
U.S. Bank offers HELOCs to borrowers with credit scores of 660 or higher, and borrowers can choose between either a variable- or fixed-rate option.
The bank does not charge an application fee or closing costs in most cases. And it offers a 0.50% interest rate discount for borrowers who make automatic payments from a U.S. Bank account.
Available nationwide
U.S. Bank’s HELOCs are available in all states.
How to apply
Borrowers can start the application online. Customer support by phone is available 24/7.
Summary: Best HELOC Rates
Company | Company - Logo | Forbes Advisor Rating | Forbes Advisor Rating | APRs starting at | Loan amounts | Min. credit score | Learn More CTA text | Learn more CTA below text | Learn More |
---|---|---|---|---|---|---|---|---|---|
Citizens | 4.5 | 8.50% | $17,500 to $400,000 | N/A | Compare Rates | Compare rates from participating lenders in your area via Bankrate.com | |||
Fifth Third Bank | 4.5 | 8.50% | $10,000 to $500,000 | 660 | Compare Rates | Compare rates from participating lenders in your area via Bankrate.com | |||
Connexus | 4.5 | 8.74% | $5,000 to $200,000 | N/A | Compare Rates | Compare rates from participating lenders in your area via Bankrate.com | |||
Alliant Credit Union | 4.5 | 8.75% | Starting at $10,000 | 620 | Compare Rates | Compare rates from participating lenders in your area via Bankrate.com | |||
US Bank | 4.5 | 8.95% | $15,000 to $1,000,000 | 660 | Compare Rates | Compare rates from participating lenders in your area via Bankrate.com |
Methodology
We reviewed nearly 20 mortgage lenders that offer home equity lines of credit for customers across the U.S. Lenders that do not display their interest rates online are not eligible for review.
We scored lenders primarily on the basis of their interest rates but added additional information that’s most important to borrowers such as time to close, discounts or promotional rates offered, closing costs, minimum credit score requirements and general loan terms.
The score is weighted evenly among the following loan and lender features:
- Interest Rate: 20%
- Minimum credit score requirements: 20%
- Closing timelines: 20%
- Accessibility: 20%
- Lender fees: 20%
Bonus points: Lenders who also underwrite home equity loans are awarded five points for offering more equity loan options
To learn more about our rating and review methodology and editorial process, check out our guide on How Forbes Advisor Reviews Mortgage Lenders.
Current HELOC Rates
HELOC Rates Forecast for 2024
HELOC interest rates are variable, meaning they can rise just as easily as they can fall and lead to sizable increases in your monthly payment. The interest rate movement on a HELOC is indirectly influenced by what the Federal Reserve does to the federal funds rate.
With inflation levels trending lower in recent months, the Fed has signaled it may be done with rate hikes. But officials haven’t declared an end to hikes just yet. Should inflation not continue to slow down, it’s likely HELOC rates will remain elevated.
The Complete Guide to HELOC Rates
- What Is a HELOC?
- How Do HELOC Interest Rates Work?
- What Is a Good HELOC Rate?
- How Often Do HELOC Rates Change?
- How To Get the Best HELOC Rate
- Pros and Cons of a HELOC
- How Do I Get a HELOC?
- Alternatives to a HELOC
What Is a HELOC?
A HELOC is a revolving line of credit secured by your home equity that may be used for many purposes including home improvements, paying off high-interest debt or making large purchases. The interest rate can be lower than personal loans or credit cards.
How Does a HELOC Work?
A HELOC works much like a credit card in that you can borrow from a HELOC repeatedly as needed for a set number of years. This period of time is known as the HELOC’s draw period and usually lasts 10 years. HELOCs can have low minimum payments during this time as lenders sometimes only require borrowers to make interest payments.
You can borrow from your available equity on demand during the draw period which is usually the first 10 years. Most HELOCs have a variable interest rate, although some lenders offer fixed interest rates to hedge against future rate hikes. It’s possible to make interest-only payments during the draw period.
Once the draw period ends, the repayment period begins and typically lasts from 10 to 20 years. During this phase, it’s no longer possible to borrow new money and start repaying the outstanding principal.
How Do HELOC Interest Rates Work?
HELOC rates are based on the prime rate, which is the rate banks use to lend to highly qualified customers. While most HELOC rates are variable—meaning they change periodically—some lenders offer fixed-rate HELOCs that allow you to lock in an interest rate and monthly payment on all or part of your balance.
What Is a Good HELOC Rate?
A competitive HELOC rate for most homeowners currently ranges from 8% to 10%. Several factors impact the interest rate such as prime rate, loan repayment term and your credit history. Choosing a standard HELOC instead of an interest-only HELOC can help you qualify for a lower rate but requires repaying principally payments during the draw period.
How Often Do HELOC Rates Change?
Variable HELOC rates can adjust up or down as frequently as every month, but each lender has a different policy and your rate may fluctuate less often. Fixed rates, on the other hand, remain the same for the life of your loan.
The loan agreement discloses how often your rate can change, and you’ll receive a rate change notice on your monthly statement about upcoming adjustments.
How To Get the Best HELOC Rate
Before you apply, here are some actions you can take to lower your HELOC rate:
- Compare lenders. Getting quotes from several of the best HELOC lenders will give you a clear idea of which company offers the best rates and fees for your desired draw period and repayment term. You may also be eligible for discounted introductory rates.
- Have good or excellent credit. Borrowers with credit scores from 670 to 850 are more likely to qualify for a lower HELOC rate.
- Reduce your debt-to-income (DTI) ratio. Having a DTI ratio below 43% is helpful, but try to aim for 36% or lower to get the best rate.
- Increase your home equity. Lenders may let you borrow up to 85% of your home equity, although having a lower loan limit can help you qualify for a better rate. This is because it lowers your combined loan-to-value (CLTV) ratio, which factors in any existing home loans.
- Choose a shorter repayment period. Similar to home purchase loans, opting for a shorter repayment period, such as 10 or 15 years, can help you land a lower rate. However, expect your monthly payment to be higher once it’s time to repay the balance.
- Consider a traditional HELOC. Lenders may offer traditional HELOC—as opposed to the more popular interest-only HELOCs—that require principal and interest payments during the draw period. While your monthly payment is higher than an interest-only HELOC, you can typically get a better rate since you start repaying your loan balance immediately.
Pros and Cons of a HELOC
Pros
- Competitive interest rates. HELOCs tend to have lower rates than unsecured personal loans and credit cards since your home equity serves as collateral. It’s also common for lenders to waive closing costs and appraisal fees.
- Interest-only payments. An interest-only HELOC only requires you to repay the monthly interest charges during the draw period. This flexibility allows for affordable payments up front, giving you the option to use your money for other expenses.
- Multiple withdrawals. You can make as many withdrawals as you want during the draw period. This is helpful in reducing your interest expenses since you’ll only pay interest on what you take out compared to home equity loans, which require you to pay interest on the full loan amount.
- Potential tax deductions. HELOC interest is tax-deductible in select situations, such as completing home improvements on the home that secures your line of credit.
Cons
- Fluctuating interest rates. HELOC rates can fluctuate as the prime rate changes. Rising rates increase your total borrowing costs, so you may need to consider refinancing a HELOC into a fixed interest rate for predictable payments.
- Potentially expensive monthly payments. Your monthly payment during the repayment phase can be unexpectedly high if you only make interest payments during the draw period.
- Early closure fees. Lenders may charge an early closure fee or prepayment penalty if you pay off your balance or close your account before a specific number of months. These restrictions are more likely when you don’t need to pay closing costs.
- Foreclosure risk. You may lose your home if you default on your HELOC as your property is collateral.
How Do I Get a HELOC?
- Shop around. Start by comparing rates from multiple HELOC lenders. Research what each lender has to offer and look into customer reviews to gauge the lender’s quality of service.
- Submit your application. After choosing a lender, you can submit an application online or at a local branch. Aim to submit applications to at least three lenders. This will give you the best chance of receiving a great rate.
- Wait for approval. To get approved for a HELOC, most lenders require a minimum 620 credit score, a maximum 50% DTI ratio and proof of income. You’ll also need at least 15% to 20% equity to apply, depending on the lender. The loan officer will verify your credit and income history and request any additional documentation. A virtual or full appraisal is also required to calculate your available equity.
- Close on your HELOC. Once you receive final approval, get ready to close. The lender will reach out to schedule a closing date. At closing, you’ll pay any closing fees and sign the closing documents. It’ll take a few business days before you can access your HELOC, but once you have access, you can withdraw money as needed.
Alternatives to a HELOC
There are two common HELOC alternatives that provide fixed interest rates and monthly payments, although you must be comfortable receiving the entire equity distribution at closing.
HELOC vs. Home Equity Loan
A home equity loan provides a lump sum distribution that you’ll repay over five to 30 years. Consider this lending method if you don’t need to make multiple withdrawals and want a fixed interest rate and monthly payment for the entire repayment period.
HELOC vs. Cash-Out Refinance
A cash-out refinance pays off your existing mortgage and replaces it with a new, larger mortgage. You’ll receive the difference as a one-time equity distribution. Cash-out refinancing can be a better choice than a HELOC if you want to maintain a single monthly payment and potentially reduce your interest rate at the same time.
Pro Tip
A HELOC will have significantly lower closing costs than a cash-out refinance as you’re financing a smaller balance. Lenders may even waive all or a portion of your HELOC closing fees.
Frequently Asked Questions (FAQs)
What is home equity?
The equity you have in your home is defined as the home’s value minus any debts you owe on the house, such as a first mortgage. In order to approve you for a home equity loan or line of credit, a lender will generally require you to have an appraisal so there’s a trusted third-party assessment of the value of the property.
How does a HELOC work?
HELOCs are revolving credit lines, meaning you can make use of only the amount you need, repay it and use it again. This takes place during what’s known as a draw period. Draw periods typically last 10 years. During this time, you still have to make a monthly payment, but it is often interest only.
However, once the draw period is up, you’re no longer allowed to use the line of credit and must start repaying the balance, including principal and interest. Repayment periods often last 20 years, though that can vary by lender.
How long does it take to get a HELOC?
The HELOC underwriting process typically takes from two to six weeks. You can typically start making withdrawals four business days after closing. Your lender may also require a minimum initial withdrawal.
What is a combined loan-to-value ratio?
Your combined loan-to-value (CLTV) ratio is the sum of any loans or debts you owe on the home—such as a first mortgage, second mortgage or home equity loan—divided by the home’s value. For example, if you have a $200,000 mortgage plus a $50,000 home equity line of credit, and your home is worth $300,000, your CLTV is 83%.
Are HELOCs a good idea right now?
If you bought your home before the pandemic, your home value has likely increased quite significantly. If you bought your home or refinanced your mortgage during the low-rate boom of the pandemic, you’re probably sitting on a rate well below current mortgage rates. In either case, a HELOC can be a good idea as it allows you to take advantage of those significant equity gains while preserving your existing mortgage rate.
While HELOC interest rates are currently higher than they have been in recent past, they’re typically lower than most personal loans and credit cards, making them a more affordable and convenient way to borrow money.
Next Up in Home Equity
- Best Home Equity Loan Lenders Of June 2024
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- Best Ways To Tap Your Home Equity
- Interest-Only HELOC Ultimate Guide
- What Is A Home Equity Line Of Credit?
- Ways To Get The Best HELOC Rates