Market Insights

How to get the best HELOC rates

The interest rate you earn for a home equity line of credit (HELOC) will depend on the amount you borrow, your credit status and financial health, the HELOC repayment term you select, and the prime rate that derives your HELOC’s variable rate.

To earn the best HELOC rate, high credit scores, low debt, short repayment terms, and a low national prime rate will all help to bring your interest rate lower.

While you compare HELOC rates and options, be sure to consider home equity alternatives like home equity loans and cash-out refinancing – which can both feature similar interest rates as HELOC.

While Discover® does not provide HELOCs, we do offer home equity loan and cash-out refinance options with low, fixed interest rates. You can see our current rates here.

Whether or not you use home equity loan financing from Discover, you can use our home buying and refinancing calculators to determine what types of refinancing work best for you to help you earn the lowest rate possible.

6 ways to earn the best HELOC rate for you

If you’re wondering how to get the best HELOC rate for you, here are some suggestions.

1. Shop around

Look at a variety of lenders to determine what rates they offer, whether they’re competitive, and what their repayment terms look like. Checking online reviews can be one way to compare lenders, but referrals from friends or neighbors that have taken out a HELOC can offer a first-hand perspective.

Many HELOC lenders offer attractive variable rates and interest-only payment periods during the HELOC withdrawal period. Take care to compare these offers against similar home equity loan options: the combination of variable rates and lower payments during the draw period will mean higher monthly payments during a HELOC repayment period with the chance that variable rates climb higher over the life of the HELOC.

Also remember to include the costs of closing a HELOC, which can include origination fees, appraisal costs, and mortgage taxes.

Discover home equity loans, in comparison to HELOCs, offer a fixed rate for the life of the loan to ensure consistent monthly payments, with $0 closing costs.

2. Improve your credit score and income

Your credit score plays a role in the interest rate you will earn from lenders for your HELOC. When you submit your HELOC application, you will want to have the best credit score possible to earn the most competitive HELOC interest rate.

HELOC lenders typically prefer a score of at least 620—though this varies depending on the lender—but higher scores can help you reduce the HELOC’s rate. If possible, prepare for your HELOC application by addressing any credit concerns by reviewing your credit report for errors.

3. Pay down debt

Your debt-to-income ratio (DTI) affects your HELOC’s interest rate and the amount you can borrow from your available equity.

The lower your debt-to-income ratio, the better your HELOC’s rate and terms will be. So, paying down debt—whether it be high-interest credit card debt or simply reducing your mortgage debt—can help improve your DTI and will increase your chances of HELOC approval, earn more competitive HELOC rates, and put you in better financial position to repay your HELOC.

4. Increase home equity

The more equity you have in your home, the higher the borrowing limit you will have for your HELOC. You will also be able to earn more competitive rates.

HELOC lenders will look at your combined loan-to-value (CLTV) ratio. This is a ratio where the numerator is your mortgage and any additional home loans including the one you are about to take. The denominator is the estimated resale value of your home.

You can improve your CLTV by either reducing the amount of your loans or by increasing the value your home. A healthy CLTV’s allow lenders to offer higher borrowing limits. It also suggests financial health as you look to repay your HELOC. Less risk for the lender can often translate to competitive interest rates for your HELOC.

5. Compare against HELOC alternatives

Consider whether a different type of loan, such as a home equity loan, might work better for you.

Discover Home Loans offers home equity loans with low, fixed interest rates, no application fees, no origination fees, no appraisal fees and zero cash due at closing. As Discover home equity loans include fixed monthly payments, you’ll earn one stable interest rate for the life of the loan and avoid the potential fluctuations of a variable-rate HELOC.

6. Shorten your repayment term

If you shorten your HELOC’s repayment term, you may be able to earn a lower interest rate than the rate with a longer repayment term. Shorter terms for the same amount will mean more in monthly payments, but you will certainly avoid interest charges when compared to a similar loan repaid over a longer term.

Be wary of introductory HELOC rates

Introductory HELOC rates can be attractive, but some HELOC lenders offer low introductory rates that last for the first 6 to 12 months, but then increase substantially. Find out how long your introductory HELOC rate lasts and what the regular rate will be after it expires.

Alternatives like home equity loans or cash-out refinancing allow you to earn an interest rate that matches your financial profile without seeing interest charges or monthly payments change from month to month.

How HELOC variable rates differ from home equity loan fixed rates

Variable rates for HELOCs are attractive when they’re low, but they fluctuate when the prime rate changes, making it difficult to budget for. Additionally, introductory rates can increase dramatically after your welcome period is over, so you’ll have to be prepared for that jump.

On top of that, once your HELOC’s withdrawal period is over, you’ll be required to pay back the interest plus a portion of the principal. Depending on how much of the HELOC you’ve used, your payment could double very quickly when the repayment period begins.

If you prefer stability in your loan’s monthly payments, the fixed rate of a home equity loan or cash-out refinance allows you to have a full schedule of monthly bills that won’t shift based on HELOC withdrawal and repayment periods or variable rates. A cash-out refinance has the additional benefit of repackaging your original mortgage as you borrow, meaning that you’ll only have one monthly payment to make.

Find the best loan secured by your home’s equity

If you’ve got equity in your home and need access to money, a HELOC can be a good option.

If stable monthly payments are a better fit for your budget, home equity loans offer the same ability to borrow from your equity, but include a lump sum payment, fixed interest rates, and fixed payment over the life of the loan. Discover home equity loans also include $0 at closing, whereas several HELOCs will include fees for origination and appraisal.

Discover also offers cash-out refinancing of your original mortgage. With a cash-out refinance, you replace your existing mortgage with a new one while also taking out some cash. In essence you will be increasing your mortgage. The new interest rate is typically lower. However, whether this option makes sense in your situation depends on the rate of you existing mortgage and the cash out amount relative to your existing balance. While a home equity loan or HELOC means making monthly payments to your existing mortgage and to your new home loan, a cash-out refinance consolidates your mortgage and additional borrowing into one simple monthly bill.

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