HELOC Rates: Compare Top Lenders in March 2024

A home equity line of credit, or HELOC, is a second mortgage that allows homeowners to borrow against the value of their homes.

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More of the Best HELOC Lenders

A BEGINNER’S GUIDE TO HELOCS
Taylor Getler
By
Last updated on March 1, 2024
Edited by
✅ Fact checked
Johanna Arnone
Edited by
✅ Fact checked

What is a HELOC?

A home equity line of credit — also known as a HELOC — is a way for homeowners to extract cash from the value of their homes. As you pay down your mortgage and the home’s value appreciates, the share of your home that you actually own (called your equity) grows relative to the portion that the lender owns (your mortgage debt). By converting some of your equity back into debt, you gain access to a line of credit that you can tap when you need it.

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Current HELOC rates: what to expect

Most HELOC rates are indexed to a base rate called the prime rate, which is the lowest credit rate lenders are willing to offer to their most attractive borrowers. One very influential factor in this rate is the Federal Reserve, which meets every six weeks and votes to raise, lower or maintain the federal funds rate. This is a separate rate that causes the prime rate to shift accordingly, with the common formula being “federal funds rate + 3% = prime rate."

When the Fed raises the federal funds rate, the prime rate goes up, and HELOC rates follow. When the Fed cuts the federal funds rate, the prime rate goes down, and so do HELOC rates. The last Federal Reserve meeting ended on January 31, 2024, and the Fed voted to leave rates unchanged. The next meeting is March 19-20, 2024.

Lenders will consider your profile — including your credit score, debts, and income — and determine a margin to add to the prime rate, which becomes your rate offer. The stronger your borrower profile is, the lower this margin will be.

🤓Nerdy Tip

Your best HELOC rate offer will be the one with the lowest margin. For example, if a lender applies a margin of 1.45% to a prime rate of 7.5%, that borrower’s rate will be 8.95%.

Some lenders offer a negative introductory margin, so that your rate is below prime for a specific period.

Current prime rate

Prime rate last month

Prime rate in the past year — low

Prime rate in the past year — high

8.50%.

8.50%.

7.75%.

8.50%.

Unless you go with a lender that offers a fixed-rate HELOC option, your rate will be variable and can change over time as the prime rate shifts. HELOCs are a long-term loan, and some borrowers choose to “lock” some or all of their balance in a fixed rate because they prefer having predictable payments. Not every lender offers a fixed-rate option.

Follow the ups and downs with NerdWallet's explanation of how the Fed affects mortgage and HELOC rates.

How do I get the best HELOC rate?

Several factors affect your HELOC rate. Among them are the current prime rate, your credit score, your combined loan-to-value ratio (which represents the percentage of home equity that you want to borrow) and your debt-to-income ratio, which is the amount of existing debt that you have relative to your income.

Borrowers with credit scores north of 620 will generally qualify for lower rates. Typically, all of your debts combined — including housing costs — shouldn’t exceed 36% of your income in order to receive the best rate offers.

Many lenders will allow you to tap up to 80% of your equity, though some will let you borrow more.

Shopping around with multiple lenders will allow you to compare HELOC offers, which can give you further confidence that you’re getting the best possible rate. If you have an existing account with any banks or credit unions (including the lender that financed your original mortgage), this can be a good place to start your search — some offer rate discounts to their customers. You can expand your search using NerdWallet’s roundup of the best HELOC lenders.

How much does a HELOC cost?

Closing costs for a HELOC may amount to 2% to 5% of the total loan amount. You should also budget for any ongoing yearly fees.

Many lenders don’t charge closing costs at all, though some require that you keep the line open for a certain amount of time.

Once you have a HELOC, the costs vary, depending on the interest rate, the amount borrowed and whether the credit line is in the draw period or the repayment period.

During the draw period, you may borrow against the credit line. The minimum monthly payments during the draw period are usually interest-only, although you may repay principal if you wish. The draw period is often 10 years, but it may vary. During the repayment period (often 20 years), you pay the loan off. You may no longer borrow against the credit line, and the minimum monthly payments include principal and interest.

Pros and cons of HELOCs

The main advantage of a HELOC is its flexibility: You draw money only when you need it, and you pay interest only on that amount. Meanwhile, you can repay as much or as little of the principal as you want during the draw period. The main drawbacks have to do with variable rates and putting your home at risk.

Pros

  • You pay interest only on the amount you have borrowed: If you have a credit line limit of $50,000, and you've borrowed $10,000, you pay interest only on that smaller amount.

  • Interest-only payments during the draw period.

  • A flexible way to pay for recurring expenses, such as a series of home renovations or tuition payments.

Cons

  • A variable interest rate means that when the Fed raises the federal funds rate, your monthly payments may go up.

  • You could lose your home if you fail to repay.

Learn more about HELOCs:

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Frequently asked questions

About the author: Taylor Getler is a home and mortgages writer for NerdWallet. Her work has been featured in outlets such as MarketWatch, Yahoo Finance, MSN and Nasdaq. Taylor is enthusiastic about financial literacy and helping consumers make smart, informed choices with their money. Email: [email protected].