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Home equity lines of credit (HELOC) are a way for homeowners to use home equity to help fund things like home renovation projects, debt consolidation, or even paying for a child’s college tuition.
But in a year that’s seen a pandemic and recession, lenders have gotten stingier when it comes to who gets credit and on what terms. Is a HELOC still a good option for homeowners?
Banks and lenders have pulled back their HELOC offerings. And the banks that are still offering home equity lending are more strict about their qualifications and terms.
If your credit is subpar right now, or you don’t own much equity in your home, you may struggle to find a lender for a HELOC at the moment. Some lenders have stopped taking applications altogether, while others may only be working with existing clients.
Best HELOC Rates for May 2021
Among banks that still have HELOC options available for those who meet the stricter credit requirements, here are the best rates we could find:
Bank
APR
Loan amount
Draw period
Repayment period
Bank of America
1.99%-24%
$25,000-$100,000,000
10 years
20 years
PenFed Credit Union
3.75%-18%
$25,000- $500,000
10 years
20 years
Connexus Credit Union
4.14%-15.9%
$5,000+
15 years
15 years
SunTrust
3.5%-10.16%
$10,000 to $500,000
10 years
20 years
BMO Harris Bank
3.5% -18%
$25,000- $150,000
10 years
20 years
Fifth Third Bank
3.75% – 7.15%
$10,000 – $500,000
10 years
20 years
HELOC Rates Today
It is going to be more difficult to qualify for a HELOC today than it was before the pandemic.
“As the economy rolls over, lenders start to become much more restrictive with credit, particularly those that are most prone to loss,” says Greg McBride, chief financial analyst at Bankrate.
Those that are most prone to loss are lenders of unsecured debt, like credit cards, and those in a second lien position with secured debt. This refers to the position of a lender to get paid if someone defaults on their loans. For a house, the mortgage lender is the first lien holder.
“In other words, they’ve got the primary spot if the borrower defaults. They’re the biggest claim, and they’re first in line. They’re the ones who would typically foreclose to get their money back,” McBride says. “It’s only after they get their money back that any subsequent lien holders would get paid.”
And as the economy remains unsteady, lenders have significantly tightened who they allow to put them in a second lien position.
“Lenders don’t want to have to foreclose in the first place, because it’s expensive and there’s no guarantee they’ll get their money back, but if that does happen you definitely don’t want to be second in line. You want to be first,” McBride says.
But while it is more difficult to qualify right now, it’s important to note that home equity borrowing hasn’t shut off completely. It’s just gotten tighter as lenders try to limit their risk exposure.
How Does a HELOC Work?
A home equity line of credit (HELOC) lets you borrow against the available equity in your home — similar to a credit card. Your home is used as collateral, meaning if you default on your payments the lender can seize your home.
Like a credit card, you’ll be able to access funds from your HELOC as you need them, instead of like a loan where you take out a predetermined lump sum amount at the onset. However, there’s usually a minimum withdrawal amount based on the total amount of your credit line. This means you’ll be required to spend up to a certain amount.
Standard HELOCs work on a 30-year model, with a 10-year draw period and 20-year repayment period, though there are some exceptions. During the draw period, you may take funds from your HELOC up to the amount of your line of credit, and then you have the repayment period to pay it back.
HELOCs traditionally have variable-rate APRs, meaning your interest rate adjusts over time based on the benchmark U.S. prime rate. The prime rate is the base rate on corporate loans posted by at least 70% of the 10 largest U.S. Banks, according to the Wall Street Journal.
Fixed-rate HELOCs
Some lenders can offer a fixed-rate, but it’s more common in a rising-rate environment. Offering a fixed-rate on an outstanding balance, for example, can help consumers if there’s risk that rates will rise.
But that’s really “not something to be concerned about now because interest rates are low and not likely to go anywhere for the next couple of years,” McBride says.
Common HELOC Uses
Home renovations
Paying for your child’s college
Ongoing large expenses (like projects or tuition) since you only have to pay back what you spend
Pro Tip
You can deduct any interest paid on a home equity loan or a HELOC if it is used to buy, build, or improve the taxpayer’s home that secures the loan.
Pros and Cons of HELOCS
Pros
Usually have lower interest rates than other financing methods like personal loans or credit cards
You only have to pay for the amount of money you actually use, plus interest
There are no regulations about what the money can be used for
There are often discounted rate offers for an introductory period
Cons
HELOCs can come with a minimum withdrawal amount
There can be limitations to how you access the funds
There is a set withdraw period after which you cannot access any further funds
There can be fees associated with a HELOC: annual fees, application fees, appraisal fees, attorney fees, transaction fees
You can hurt your credit if you do not make payments on time
How to Apply for a HELOC
Do your research
Go to the lender’s website and fill out an application
Enter your personal information like: name, address, estimated credit score, and how much you want your line of credit to be
Submit your application and wait for approval
How to Get a Good HELOC Rate
With interest rates at a low right now, HELOC rates are already better than those for other types of loan like credit cards. For those who qualify for better rates closer to 5%, that’s still much better than credit cards, which have an average APR of 16%.
There are several factors that determine what your HELOC rate will be:
Your credit score and history: Lenders will pull your credit score to determine your creditworthiness, just as they would for any other type of loan or credit card application. Having good credit, or improving your credit before you apply, can increase your chances of a more favorable rate.
Your home equity: The more you have, the more it will positively affect your combined loan-to-value ratio (CLTV). The CLTV is a metric used to measure the relationship between a loan amount and the market value of your home. The more equity you have, the lower your CLTV will be and the better you’ll look to the lender.
The lender: Different lenders offer different rates. Make sure to shop around and consider all of the options for HELOC rates, and don’t discount local credit unions or banks.
What Is a Good HELOC Rate
While this largely depends on your home equity, creditworthiness, and the housing market you’re in, the most attractive rate can be near the bottom-end of what lenders currently offer, which is around 3.5% among the lenders we include in our best HELOC rates list. But only people with a lot of home equity and great credit would qualify for that rate.
HELOC vs. Home Equity Loan
HELOCs are different from another common type of home equity financing — home equity loans. The interest rates you’ll get for each are determined by your credit score, home equity, where you live, the value of your property, and other factors.
HELOC
Home Equity Loan
Revolving credit line
Fixed-term loan
Variable APR (usually)
Fixed APR
Pay only what you spend
Pay full loan amount
Home used as collateral
Home used as collateral
Set draw period
Funds for as long as they last
Ongoing cash
Lump sum at onset of loan
Interest can be deducted for home projects
Interest can be deducted for home projects
HELOC Vs. Cash-out Refinance
If you can do a cash-out refinance right now, that should be your first choice. The rates for cash-out refinancing are currently better than those for HELOCs, so you may be able to access your equity and save on mortgage interest at the same time.
Bank of America is a large national bank with many locations. You can access its home equity line of credit offerings online or in person. It takes about 15 minutes to submit your application for a home equity line of credit online through Bank of America.
Pros
Bank of America is the second-largest bank in the U.S. with over 4,000 locations, making the lender very accessible.
Bank of America has no HELOC application fee, closing costs (on lines up to $1,000,000), or annual fee, and you can qualify for discounts on your HELOC interest rate:
An interest rate discount for auto pay of 0.25% for setting up automatic payment at or prior to opening your HELOC account and maintaining them through an eligible Bank of America deposit account
A 0.05% interest rate discount for every $10,000 initially withdrawn at account opening (up to 0.75% for initial draws of $150,000 or more)
A 0.25% interest rate discount for a HELOC in a first lien position
An interest rate discount of up to 0.375% for Preferred Rewards members with Bank of America
There’s also no fee to convert a withdrawal from your HELOC into a fixed-rate loan (fixed-rate HELOC). Converting to a fixed rate will result in fixed monthly payments at a fixed interest rate. The minimum HELOC amount that can be converted at account opening is $5,000, and the maximum is 90% of your line amount with a minimum loan term of 1 year. You may also convert all or a portion of your outstanding HELOC variable-rate balance to a fixed rate option.
You can access your HELOC online or via mobile banking, or with a home equity line of credit check or a Visa Access card. Pay down your bill by transferring funds using online banking, or set up automatic payments using Bill Pay.
Cons
Bank of America does not offer a narrower APR range that some other lenders do. Your variable APR will fall somewhere between 1.99%-24%, based on your home equity, loan-to-value ratio, creditworthiness and other factors.
Bank of America’s minimum line amount is $25,000. Other lenders offer lower line minimums, so you may want to look elsewhere if your project or reason for getting a HELOC will not require up to $25,000. Lines go up to $1,000,000 for primary residences, or $500,000 for secondary residences.
Bank of America
APR
1.99%-24%
Loan Amount
$25,000-$1,000,000 (for primary residences, $500,000 max for secondary residences)
Draw Period
10 years
Repayment Period
20 years
PenFed Credit Union
Overview
PenFed Credit Union has 2 million members worldwide, and though many credit unions have strict requirements for joining members, anyone can join PenFed.
Pros
PenFed pays most, but not all, closing costs associated with an interest-only HELOC, which includes credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, property search, and quick close.
Cons
Members are responsible for paying city, county, and/or state taxes if the property is located in: Florida, Louisiana, Maryland, Minnesota, New York, Tennessee, or Virgina. Members are responsible for appraisal costs and notary fees.
There’s an annual fee of $99 that will be assessed on each account anniversary if $99 in interest was not paid during the preceding 12-month period.
PenFed Credit Union
APR
4.75%-18%
Loan Amount
$25,000-$500,000
Draw Period
10 years
Repayment Period
20 years
Connexus Credit Union
Overview
Connexus has a more-limited membership scope, and primarily operates in Minnesota, Wisconsin, and Ohio. You have to be eligible in order to join.
Pros
Connexus stands out for its non-traditional draw and repayment period. You’ll have 15 years to draw from your HELOC, meaning five more years to access your funds than the traditional 10-year period.
Cons
On the flip side, you’ll also have five fewer years to repay your HELOC. Connexus also has a 15-year repayment period, shorter than the traditional 20 years.
Connexus Credit Union
APR
4.14%-15.9%
Loan Amount
$5,000+
Draw Period
15 years
Repayment Period
15 years
SunTrust
Overview
SunTrust operates primarily in the southeastern United States, which may prevent your from accessing a HELOC if you don’t live near a branch.
Pros
You won’t pay closing costs for your HELOC, and for lines of $10,000 or more, SunTrust will advance certain costs on your behalf, including the first property/collateral valuation.
Cons
HELOCs are only available for owner-occupied, single-family primary residences in Florida, Georgia, Tennessee, Alabama, South Carolina, Virginia, North Carolina, Maryland, Washington, D.C., Arkansas, West Virginia, and Mississippi.
SunTrust
APR
3.5%-10.16%
Loan Amount
Based on current home value and mortgage
Draw Period
10 years
Repayment Period
20 years
BMO Harris Bank
Overview
BMO Harris is America’s 8th largest bank with more than 12 million customers. HELOCs may not be available in all states.
Pros
You can get interest rate discounts through BMO:
Premier customers may be eligible for an additional 0.25% interest rate discount
You can get a .5% auto pay discount if you authorize BMO to withdraw your home equity line of credit payment each month from an eligible BMO Harris checking account
BMO Harris will pay closing costs for loans secured by owner-occupied, 1-4 family residences.
Cons
There’s a $75 annual fee on the loan opening date, and each year after during the draw period. If your property is located in Florida or Minnesota, you are responsible for mortgage and government taxes.
You can convert a HELOC to a fixed rate at a minimum withdrawal of $2,000, and up to 100% of your line. You can have no more than three fixed rate lock options open at one time, and there’s a $75 fee each time you convert a fixed rate lock option after the date of origination.
BMO Harris
APR
3.5%-6.54%
Loan Amount
$25,000- $150,000
Draw Period
10 years
Repayment Period
20 years
Fifth Third Bank
Overview
Although Fifth Third is a national bank, their HELOCs are only available in certain states. And unlike other lenders, you’ll have to visit a branch in person to fill out an application.
Pros
Fifth Third will waive your annual fee for the first year, and every year after that if you’re a Preferred checking account holder.
You can qualify for interest-only payments for the first 10 years, but your payments will increase for the rest of the life of the loan. Your interest may also be tax deductible. Fifth Third will pay your closing costs, as well.
Cons
Fifth Third is a national bank, but doesn’t offer HELOCs in every state— and you must have an eligible checking or savings account with the lender to qualify.
For a primary residence, your line can be up to $500,000, but the maximum for secondary residences is $250,000.
Your annual fee is waived for the first year, but $65 after that (unless you’re a Preferred checking customer). There’s a $95 fee to fix your HELOC rate.
Fifth Third
APR
3.75% – 7.10%
Loan Amount
$10,000 – $500,000
Draw Period
10 years
Repayment Period
20 years
Methodology
This list does not represent the entire market. To rank the home equity line of credit (HELOC) rates you’re most likely to be considering, we began by analyzing 18 of the most popular HELOC options.
We eliminated any banks that don’t make information on rates and fees easy to find on their websites, or that have stopped offering HELOCs for the time being.
Some lenders also offer fixed-rate HELOCs, special introductory period offers, or other interest-only period payment plans. Since HELOCs are long-term loans, we only looked at currently available variable-rate APR ranges excluding those special factors.
The APRs shown above are accurate as of April 2, 2021. They are the only APRs openly available for the lenders we looked at. The NextAdvisor editorial team updates this information regularly, though it is possible APRs and even the existence of these HELOC offerings have changed since they were last updated.
Home Equity Line of Credit FAQs
Are HELOC rates fixed?
Most home equity lines of credit (HELOCs) have variable rates, but you may sometimes have the ability to switch it from a variable-rate to a fixed-rate. A fixed-rate HELOC locks in some or all of the remaining balance of your variable-rate HELOC at a particular interest rate. Essentially, this converts your HELOC to a fixed-rate loan after your draw period has ended, which can be helpful in a rising rate environment.
Which is better: A HELOC or a home equity loan?
This depends on what you want to use your home equity for. A home equity loan is a loan against the value of your home, paid to you in a lump sum. That makes it an attractive option for large, one-time expenses, such as getting a new roof or funding a large-scale home renovation. With a home equity line of credit, or HELOC, you are given credit up to a predefined maximum amount, similar to how a credit card works. You can tap into that credit over a defined period of time for ongoing expenses such as home renovations, or to consolidate higher-interest debt.
Is a HELOC a good idea?
HELOC rates are low right now, so if you can find one, and it makes sense to borrow against your home’s equity, it can be a good time to lock one in.
A HELOC — and how you use it — can impact your credit score. For starters, failing to make on-time payments to any loan, including a HELOC, will hurt your credit score. Something else to keep in mind is how a HELOC impacts your credit utilization ratio — how much of your total available revolving credit you use.
