Home Equity Line Of Credit

Discovering the Best HELOC Rates with LendingTree

Shopping for Home Equity Line of Credit (HELOC) rates has never been easier, thanks to our user-friendly HELOC rate tool. With a simple click, you can access multiple lenders, an alternative to the time-consuming process of researching and contacting each lender individually.


Understanding Home Equity Line of Credit (HELOC)

A HELOC is essentially a credit line against your home equity, functioning much like a credit card. You can utilize this line as required, paying interest solely on the amount used. Interest rates for a HELOC are typically variable.


HELOC lenders usually offer an interest-only payment option during the initial 10 years (known as the “draw period”). During this period, you pay only the monthly interest charges while the owed balance remains constant. Once the draw period ends, the “repayment period” begins, and any outstanding balance is generally repaid over a 15- to 20-year term in fixed installments.


Exploring Interest-Only HELOC

The term “interest-only HELOC” refers to the interest-only payment option that most HELOC lenders offer. Some borrowers opt for regular principal and interest payments to reduce their loan balance. However, the interest-only option can be beneficial if you need short-term payment savings and plan to pay off the balance swiftly.


Demystifying HELOC Rates

HELOC rates are predominantly tied to the prime rate, a variable interest rate set by individual banks, often based on federal funds rate targets established by the Federal Reserve. Several factors determine your HELOC rate:


  • Home Equity: A lower loan-to-value ratio, meaning you borrow less of your home’s value, often results in lower HELOC rates.
  • Credit Score: A score of 740 or higher is usually necessary to secure the lowest HELOC rate.
  • Debt-to-Income (DTI) Ratio: A low DTI ratio, indicating less monthly debt compared to your income, can drive down your HELOC rate.
  • Index and Margin: Your HELOC rate is determined by adding a set amount, known as the margin, to your index (e.g., the prime rate).
  • Teaser Rate: Some lenders may offer a lower introductory rate for a certain period, which increases based on the margin and index once the teaser rate concludes.
  • Periodic Cap and Lifetime Cap: These numbers indicate how much and how frequently your rate can change at a given time, and the maximum limit your rate can reach during your HELOC term, respectively.

Securing the Best HELOC Rates

Boosting your credit score, maintaining low credit card balances and timely bill payments can help you secure the best HELOC rates. Borrowing less of your home’s value also results in lower HELOC rates. Additionally, shopping around and comparing rates from at least three to five lenders can lead to a better deal. Some local banks may even offer special deals on a HELOC if linked to your checking or savings account.