HELOC Rates: 2024 Averages, Credit Limits and APRs

Today’s average HELOC rates are favorable

Home equity line of credit (HELOC) rates tend to be higher than standard mortgage interest rates. So why are more homeowners choosing HELOCs over cash-out refinances?

One reason is that HELOCs let you cash out only the amount of home equity you need. You don’t have to borrow — and pay interest on — the entire value of your home.

Plus, a HELOC is a credit line you can draw on as needed. And, unlike a cash-out refinance, HELOCs are relatively cheap to set up. So a home equity line of credit often costs less than a cash-out mortgage when all’s said and done.

In this article (Skip to...)

• Current HELOC rates
• Best HELOC rates
• HELOC credit limits
• HELOC lenders
• HELOC alternatives
• FAQ

Today’s current HELOC rates

As we move further into 2024, homeowners are keeping a close eye on home equity line of credit rates. The general trend in HELOC rates throughout 2023 and into 2024 has been a gradual increase, largely influenced by the Federal Reserve’s monetary policy decisions and the overall economic climate.

The average HELOC rate in 2024 hovers around 7.5% to 8.5% for most borrowers.

According to recent data from The Wall Street Journal, the average HELOC rate in 2024 hovers around 7.5% to 8.5% for most borrowers. However, it’s essential to note that individual rates may vary depending on several factors, such as the borrower’s credit score, loan-to-value ratio (LTV), credit line amount, and the lender’s specific terms.

To put this into perspective, let’s consider an example of what an average borrower might expect to receive today:

• A homeowner with a credit score of 740, a home value of $400,000, and an outstanding mortgage balance of $200,000 could potentially secure a HELOC with an annual percentage rate (APR) of approximately 7.8%.
• This rate would allow them to access a credit limit of up to $100,000 in equity, assuming a combined loan-to-value ratio of 75%.

What affects HELOC rates?

It’s important for borrowers to understand the factors that affect the HELOC rates they are offered.

• Credit score plays a significant role, with higher scores generally translating to lower interest rates.
• Loan-to-value ratio is another crucial factor, as lenders typically prefer a combined ratio of 80% or less when considering both the primary mortgage and the HELOC.
• Credit line amount requested can also impact HELOC rates, with larger lines of credit sometimes carrying higher interest rates.

Additionally, market conditions, such as the prime rate and the overall demand for HELOCs, can influence the annual percentage rates lenders offer.

How to get the best HELOC rates

Securing the best HELOC rates in 2024 is a top priority for homeowners looking to tap into their home equity.

To ensure you get the most competitive rates, consider the following tips:

• Shop around and compare offers from multiple lenders, including your current mortgage lender
• Maintain a strong credit score (740 or higher) and a low debt-to-income ratio (DTI)
• Keep your combined loan-to-value ratio (CLTV) at 80% or below
  • CLTV is calculated by dividing the total of your mortgage balance and desired HELOC amount by your home’s value
  • A lower CLTV demonstrates lower risk to lenders, potentially resulting in better rates
• Consider a shorter draw period, as longer draw periods may come with higher rates
• Be prepared to provide documentation of your income, assets, and debts
• Evaluate whether a variable or fixed-rate HELOC best suits your needs
  • Variable rates may start lower but can fluctuate over time
  • Fixed rates may be slightly higher but offer more predictability
• Negotiate with lenders and ask if they can match or beat competitor rates
• Be aware of any fees associated with the HELOC, such as annual fees or closing costs
• Consider automatic payments or a direct deposit relationship with the lender, which may qualify you for rate discounts

By following these tips and maintaining a strong financial profile, you can increase your chances of securing the best HELOC interest rates. Remember to carefully compare offers, negotiate with lenders, and choose the option that best fits your long-term financial goals.

HELOC credit limits in 2024

When considering a home equity line of credit, one of the most important factors to understand is the credit limit. The credit limit is the maximum amount of money a borrower can access through their HELOC, and it’s determined by a combination of factors, including the home’s value, outstanding mortgage balance, and the lender’s risk assessment.

In 2024, the average HELOC credit limit varies depending on the lender and the borrower’s specific circumstances. However, most lenders typically allow homeowners to borrow up to 80% or 85% of their home’s value, minus the outstanding mortgage balance.

• For example, if a home is valued at $500,000 and the outstanding mortgage balance is $300,000, the homeowner may be able to secure a HELOC with a credit limit of up to $100,000 or $125,000, depending on the lender’s policies.

It’s important to note that while some lenders may offer higher credit limits, borrowers should carefully consider their financial situation and ability to repay before accepting a larger credit line.

Borrowers can expect lenders to conduct thorough assessments of their credit history, income, and debt-to-income ratio when determining the credit limit they are willing to offer.

Ultimately, the credit limit a borrower can expect in 2024 will depend on their personal finances and the lender’s risk appetite. Homeowners should shop around and compare offers from multiple lenders to find the most suitable HELOC credit limit for their needs and financial circumstances.

What should I look for in a HELOC lender?

Choosing the right HELOC lender doesn’t have to take a lot of effort. However when evaluating potential lenders, there are several key factors to consider.

• Competitive HELOC rates: The HELOC interest rates offered by lenders can significantly impact the overall cost of your loan. Look for competitive home equity line of credit rates and compare them across different lenders. Remember, even a small difference in the interest rate can have a substantial effect on your monthly payments and the total amount paid over the life of the loan.
• Fees: In addition to HELOC rates, be aware of any fees associated with the loan. This can include application fees, origination fees, appraisal fees, closing costs, and annual fees. Some lenders might offer lower interest rates but charge higher fees, so it’s important to consider the total cost.
• Loan terms: Examine the terms of the HELOC, such as the length of the draw period, the repayment period, and any penalties for early repayment.
• Customer service: Quality customer service is important. A lender that offers responsive, helpful support can make borrowing much smoother. Read customer reviews and testimonials to gauge the lender’s reputation for service.
• Flexibility and additional features: Some lenders might offer extra features like the ability to convert a portion of your HELOC to a fixed-rate loan or offer different types of repayment and rate options.

You might discover that your best rate for a HELOC is available through your current bank or a federal credit union, since many financial institutions provide rate discounts to existing customers. Streamlining your loan repayments with the same institution where your checking account or savings accounts are held can be advantageous.

What is a HELOC?

A HELOC, or home equity line of credit, allows homeowners to convert the equity in their home into accessible cash. This equity, which is the portion of the home you own outright, increases as you pay off your current mortgage balance and as the property’s value rises. With a HELOC, you can transform a part of this home equity into a flexible credit line, providing funds that are available for use as needed.

This flexibility makes it a popular choice among homeowners, especially in areas with dynamic real estate markets like New York, California, and Texas. Unlike fixed-rate home equity loans and second mortgages, most HELOCs have a variable interest rate that’s linked to the prime rate. A HELOC’s variable interest rate fluctuates along with mortgage rates and the federal funds rate.

Yet some lenders do offer fixed-rate HELOCs that allow you to lock in a set interest rate for the entire credit line.

How does a HELOC work?

A HELOC has two main phases: the draw period and the subsequent repayment period. During the draw period, you have the flexibility to withdraw funds from your credit line for various needs. Once you enter the repayment period, additional withdrawals are no longer possible, and you must start repaying the borrowed loan amount on a monthly basis.

Draw period

The draw period is when you can access funds from your HELOC, up to the limit set by your available home equity. Similar to a credit card, you can borrow, repay, and reborrow within this limit.

A typical draw period lasts for about 10 years, although some lenders may offer different durations. During this 10-year draw period, you can make interest-only payments on the amount you withdraw, which doesn’t affect the outstanding balance of the credit line. The principal amount can be deferred until the start of the repayment period.

Repayment period

Once the draw period concludes, the repayment period begins. Here, you’re required to pay back the total amount borrowed, plus interest. This repayment typically spans 10 to 20 years and involves fixed monthly installments.

It’s important to note that HELOC rates are variable, meaning both the interest rate and monthly payments might fluctuate over the repayment period, depending on the prevailing rates and the total amount borrowed.

How much does a HELOC cost?

HELOC closing costs typically range from 2% to 5% of the loan’s total amount. It’s wise to budget extra for additional fees for origination, home appraisal, credit report, title search, document preparation, loan recording, and notary fees, along with any annual fees.

However, many lenders offer HELOCs without any closing costs, though they may require the credit line to remain open for a specified duration.

Some HELOCs offer an introductory rate, which can provide a lower interest rate initially. HELOCs may also come with annual maintenance fees, automatic payments options, and potential prepayment penalties.

Pros and cons of HELOCs

Home equity loans are a popular borrowing option for homeowners who want to leverage their home value to pay for ongoing expenses. And while HELOCs have many benefits, you’ll want to consider its drawbacks before beginning a HELOC application process.

Benefits of HELOCs

HELOCs offer a range of advantages that make them an appealing choice for many homeowners. One of the primary benefits is the flexibility they offer in both borrowing and repayment terms. Unlike traditional loans, a HELOC allows you to draw funds as needed up to a certain limit and repay them on a more flexible schedule. This can be particularly advantageous for ongoing projects with fluctuating costs or for managing cash flow if your income is irregular.

Furthermore, HELOC rates are generally lower compared to many other types of loans, making them a cost-effective option for borrowing. Additionally, the interest paid on a HELOC may be tax deductible, especially if used for home improvements, which adds to its appeal as a loan option.

Disadvantages of HELOCs

However, there are also several risks associated with home equity lines of credit that borrowers need to be aware of.

One of the main concerns is the variable nature of HELOC rates. While this can mean lower rates initially, these rates can fluctuate and potentially increase significantly over time, leading to higher monthly payments that may become unmanageable.

Moreover, as a HELOC is secured against your home, there’s a tangible risk of foreclosure if you fail to make payments. This makes it imperative to borrow responsibly and within your means. Another potential downside is the temptation to overspend. The easy access to funds can lead to overborrowing for some individuals, creating a debt that could be challenging to repay, especially if the home’s value decreases or personal financial circumstances change.

HELOC alternatives

If you’re not sure whether paying variable HELOC rates is best for you, you may find a more suitable loan option in home equity loans, cash-out refinance, or personal loans.

Home equity loans

Home equity loans are a popular alternative to HELOCs. Unlike a HELOC, which provides a revolving credit line, a home equity loan offers a lump-sum payment to the borrower. This makes them popular for large, one-time expenses like home renovations or consolidating high-interest debt.

While home equity loan rates might be slightly higher than HELOC rates, they do offer the security of fixed interest rates. This stability can make budgeting easier because your monthly payments remain constant over the life of the loan.

Cash-out refinance

Cash-out replaces your existing mortgage with a new home loan for more than you owe on your house. The difference is given to you in cash, which can be used for a variety of purposes, including home improvements, purchasing investment property, or other significant expenses.

This option can be particularly appealing when mortgage rates are lower than current HELOC rates, offering a way to consolidate debt or fund large expenses at a more favorable interest rate.

While cash-out refinancing can offer lower interest rates compared to HELOC rates, it’s important to consider the closing costs associated with refinancing, which can add to the overall expense. Additionally, since this option involves replacing your existing mortgage, your mortgage terms may change, potentially extending the time it takes to pay off your home.

Personal loans

Personal loans are another viable alternative, especially for those who might not have sufficient equity in their homes or prefer not to use their home as collateral. Personal loans are typically unsecured, meaning they don’t require any collateral, but this often results in higher interest rates compared to secured loans like HELOCs or home equity loans.

The advantage of personal loans is their flexibility; they can be used for a variety of purposes, including debt consolidation, home improvement, or even major purchases. The approval and interest rates for personal loans are heavily dependent on your credit score and financial history.

FAQ: HELOC Rates

Are you ready to compare HELOC rates?

HELOC rates are generally higher than mortgage rates. But you pay interest only on what you borrow — meaning HELOC payments are often much lower than mortgage payments.

Both mortgage types have pros and cons, so consider your loan options carefully.

Check in with several lenders to learn what HELOC rates you qualify for. You can begin the process by clicking the links below.