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What are the Best HELOC Rates a borrower can get? A Home Equity Line of Credit (HELOC) is one of the most popular borrowing options among homeowners looking to tap into the equity they’ve built in their property. They have varying features from a traditional loan lender where they allow homeowners to borrow as needed, repay, and then borrow again. HELOC works like a revolving line of credit, similar to a credit card.
Moreover, with HELOC rates fluctuate based on market conditions and borrower qualifications, finding the best rates can save you thousands of dollars over the life of the line of credit.
What is a HELOC?
A HELOC is simply a secured loan that allows homeowners to borrow against their home’s equity. Also, it offers flexibility to borrowers as it allows them to draw from the credit line as needed. Furthermore, they only get to pay interest on the amount used. Some of the features of a HELOC include:
Draw period: It is typically 5-10 years, during which you can borrow and repay funds.
Repayment period: It is often 10-20 years, during which you pay off the outstanding balance.
Interest rates: HELOC rates are generally variable, which means they fluctuate with the market, although some lenders offer fixed rates.
Current HELOC Rates As Of 2024
HELOC rates can vary based on the borrower’s creditworthiness, the lender, and the home loan-to-value ratio (LTV). Here are some of the average rates available:
National Average HELOC Rate: 8.15% APR
Best Rates for Excellent Credit (740+ FICO score): 7.00% – 8.00% APR
Rates for Good Credit (680-739 FICO score): 8.25% – 9.00% APR
Rates for Fair Credit (620-679 FICO score): 9.25% – 10.50% APR
However, you should note that these rates are based on 80% loan-to-value (LTV). This means that the total borrowing amount, including your primary mortgage and HELOC, does not exceed 80% of your home’s value. Typically, lenders may offer lower or higher rates depending on your specific financial situation.
Factors That Influence HELOC Rates
Several factors influence the HELOC rates you may be offered by lenders. Understanding these factors can help you qualify for a better rate and make informed borrowing decisions. Many of these factors include:
Credit Score
Your credit score is one of the most significant determinants of your HELOC rate. Borrowers with excellent credit scores (740 and above) typically receive the most favorable interest rates. However, if your credit score is lower, you are more likely to deal with higher rates or stricter terms.
Loan-to-Value Ratio (LTV)
Another influencing factor is the Loan-to-Value Ratio. Lenders will calculate your loan-to-value ratio by dividing your outstanding mortgage balance and the desired HELOC amount by the value of your home. If your LTV is low, it means you have substantial equity in your home. Thus, you are more likely to qualify for a lower interest rate.
Prime Rate
Many HELOCs are tied to the prime rate, which is mainly the interest rate that commercial banks charge their most creditworthy customers. The prime rate is influenced by the Federal Reserve’s federal funds rate. So if the Federal Reserve raises the rates, the prime rate and HELOC rates as well, will increase.
Interest Rate Type
There are variable interest rates on most HELOCs. Eventually, this means the rate can change drastically depending on market conditions. However, some lenders do offer a fixed-rate option, which allows you to lock in a specific rate.
Lender Terms
Each lender has its own rates and terms based on its risk assessment criteria. While some lenders offer discounts for automatic payments, others may require you to open a checking or savings account to qualify for the lowest rate.
These are some of the determining factors that influence the best HELOC rates you may get from lenders.
Best HELOC Lenders in 2024
Here are some of the top lenders offering competitive HELOC rates in 2024:
Bank of America
The Bank of America has its rates starting at 6.85% APR. They also offer discounted rates with automatic payments and a Bank of America checking account. Also, their loan Amount ranges from $25,000 – $1,000,000.
Wells Fargo
Well Fargo is another reliable lender that can offer you the best HELOC rates. With their rate starting at 7.15% APR, they also offer a No closing costs for most customers and a simple online application process. Furthermore, their loan amount starts $25,000 to about $500,000.
U.S. Bank
The U.S Bank has its HELOC rate starting at 7.25% APR and their loan amount ranging from $15,000 to $750,000. Also, they offer special discounts for existing customers and a low introductory rate for the first year.
Citibank
Citibank is another great HELOC lender with their rate starting at 7.00% APR and their loan amount ranging from $25,000 to about $1,000,000. Additionally, they offer fixed-rate conversion options and large loan limits for high-equity borrowers.
PNC Bank
Another trustworthy lender is PNC Bank with their rate starting at 7.50% APR. They also have a key feature of having No annual fee and flexible payment options during the draw period. Moreover, their loan amount ranges from $10,000 to $500,000.
These are some of the best money lenders that can offer you the best HELOC rates you can find in the market.
Pros Of HELOC Rates
Here are some of the pros you get with the best HELOC rates:
- Flexible borrowing: You can conveniently borrow and repay as needed during the draw period.
- Lower interest rates: HELOC rates are generally lower than credit cards and personal loans.
- Tax-deductible interest: The interest you will pay on a HELOC may be tax-deductible. This is only if the funds are used for home improvement.
Cons Associated With These Rates
Here are some drawbacks that you may face when dealing with HELOC rates:
- Variable interest rates: Your monthly payments may increase if the prime rate rises.
- Foreclosure Risk: Since you use your home to secure the HELOC, failure to repay could result in foreclosure. You stand the chance of losing your home.
- Fees: Some of these HELOCs come with annual fees, closing costs, and other charges that can add to the cost of borrowing.
These are some risk factors that you must also consider before you go ahead with the decision to get a HELOC.
How to Get the Best HELOC Rates
To secure the best HELOC rates, here are considerable steps you can take:
- Improve Your Credit Score: Start by paying off your debts and avoiding late payments. Also, you should reduce your credit card balances to boost your credit score before applying for a HELOC.
- Compare Lenders: Also, you should shop around for the best rates and terms. Don’t just focus on the interest rate alone. You must also consider their fees, closing costs, and the lender’s reputation.
- Opt for Automatic Payments: Many lenders will offer discounts if you set up automatic payments from a checking or savings account. So, you should try opting for that option.
- Negotiate with Lenders: If you have good credit and substantial home equity, you may be able to negotiate a lower rate or better terms with lenders.
- Select a Shorter Repayment Term: You might want to go for a shorter repayment term with your lender. Having shorter terms typically comes with lower interest rates, but you must be prepared to make higher monthly payments.
Frequently Asked Questions
Here are some frequently asked questions you can check out:
What is the average HELOC rate in 2024?
As of 2024, the average HELOC rate is approximately 8.15% APR. However, rates can vary depending on creditworthiness, lender, and loan-to-value ratio.
Can I deduct the interest on a HELOC from my taxes?
Yes, you can. However, you can only do so if the HELOC is used to “buy, build, or substantially improve” the property securing the line of credit. Also, you might want to consult a tax professional for specific advice.
What credit score do I need for a good HELOC rate?
A credit score of 740 or higher will typically qualify you for the best HELOC rates. Scores in the 680-739 range may still qualify for competitive rates but might not be the lowest available.