Market Insights

Tips for best HELOC rates

Family celebrating great HELOC rates with a toast.

Please note: Discover® Home Loans offers a home equity loan product, but does not offer HELOCs.

If you're trying to decide on a home equity line of credit (HELOC) or other home equity loan product, it's important to understand how HELOC rates are calculated and how much they can cost you over the life of your loan or line of credit.

Factors affecting HELOC interest rates

While a HELOC with a variable rate is based on the prime rate, the marginal rate that lenders add on top of that prime rate depends on a few basic elements, including your:

  • Credit score and credit history: A homeowner who has good credit will be more likely to qualify for lower interest rates on their home equity loan or HELOC than borrowers with lower credit scores. For example, Discover has home equity loan requirements that include a minimum credit score of 660.
  • Available home equity: The difference between your home’s current value and the amount remaining on any existing home loan(s) represents your available home equity. Your home equity allows lenders to calculate the maximum loan amount that you are eligible for. Having more equity then the amount you plan to borrow may lower the interest rates offered to you.
  • Length of HELOC repayment period: When you sign up for a HELOC, you are not getting a fixed term with a set schedule of monthly repayments like you would with a typical home equity loan. Instead, your HELOC will include a draw period that equals how long you will have access to withdraw money from your HELOC account and a repayment period that equals how long before you are expected to repay any money borrowed from your HELOC. The length of your repayment period can affect your interest rate. For example, some HELOCs have repayment periods of as few as 5 years or as many as 30 years. The longer the repayment period, the more interest you could pay over the life of the loan.
  • HELOC withdrawal amount: Interest charges from a variable-rate HELOC can also change based on the amount withdrawn, as the outstanding amount you borrow is used to calculate the interest you owe. So, if you withdraw less than your maximum borrowing limit from a HELOC, you may reduce the interest charges of the loan.
Couple in their dining room reviewing HELOC rates and comparing HELOC lenders.

Finding a HELOC with rates, terms and repayment that works for you is easy if you know what to look for.

How to earn the best HELOC rates

  • Compare lenders: Look at a variety of lenders to determine what rates they offer, whether their products are competitive, and what their repayment terms look like. Checking online reviews can be one way to research 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.
  • 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. Higher scores can help you reduce the interest rate. If possible, prepare for your application by addressing any credit concerns by reviewing your credit report for errors.
  • Pay down other debt: Your debt-to-income ratio (DTI) affects your HELOC interest rate and the amount you can borrow from your available equity. The lower your debt-to-income ratio, the better your rate and terms might be. So, paying down debt—whether it’s paying off high-interest credit card debt or reducing your mortgage debt—can help improve your DTI and will increase your chances of approval, receiving more competitive rates, and successfully repaying your HELOC.
  • Increase your home equity: The more equity you have in your home, the more money you may be able to borrow with a HELOC. You may also be able to find more competitive rates. HELOC lenders will look at your combined loan-to-value (CLTV) ratio to determine how much equity you have available. This is the ratio of your existing home loan(s) divided by your current home value. You can improve your CLTV by either reducing the principal amount on your home loans or by increasing the value your home. A healthy CLTV allows lenders to offer higher borrowing limits. It also suggests financial health as you look to repay your HELOC. 
  • Shorten your repayment term: If you shorten your HELOC repayment term, you may be able to earn a lower interest rate you would with a longer repayment term. Shorter terms for the same amount will mean higher monthly payments, but you will avoid interest charges when compared to a similar loan repaid over a longer term.
  • Compare HELOCs with other products: After reviewing your options for taking out money with a HELOC, consider whether alternatives for withdrawing from your home equity might be better options for your unique situation. These might include products such as a traditional home equity loan or a cash out refinance.

Questions to ask lenders to get the best HELOC interest rates

If you want to get a HELOC, it pays to shop around. Different lenders can offer better deals, better interest rates, better loan features, and otherwise give you a better home equity loan product to suit your financial needs.

Some lenders might offer a special low introductory APR (annual percentage rate) that can help you save money. Other lenders might offer a longer draw period for your HELOC so you can borrow money (with the approved terms and variable interest rate) for a longer timeframe than other lenders offer.

Your HELOC interest rate is important, but it's not the only thing to consider when choosing a lender.

How long does the initial introductory rate last, and what happens next?

Some lenders offer a super-low introductory APR, but this rate might only be applicable to the first 12 months (or less) that your account is open – then the interest rate goes up. Make sure you understand how long the special intro offer will last and read the details on what your interest rate will be from then on.

What is the HELOC rate index and margin/mark-up?

Find out how the HELOC rate is calculated. Many lenders will spell this out in the fine print on your loan application, such as “prime rate + 2%-13.99%." The range of interest rate margin available to you will depend on your credit score and other qualifying factors.

What is the increase in HELOC margin, and what are the HELOC rate caps?

If you are getting a variable-rate HELOC, you'll want to find out just how high that interest rate can go. Is the lender offering any details on what happens if interest rates go up? Will the lender's margin also go up, or are they committing to a fixed margin? And what is the maximum rate that they will charge on this loan?

These details should be available in the terms and conditions of the HELOC, which you can review prior to signing up for the HELOC account. Find out if your lender offers a cap on the rate to put a limit on the maximum interest rate that you can be charged to protect yourself from high prime rates.

How long is your HELOC draw period?

Find out how long you'll be able to withdraw money from your HELOC. After this draw period is up, you would have to get your lender to approve an additional draw period, or refinance your HELOC, if you want to continue borrowing.

Are there options for HELOC balloon payments?

Many borrowers repay their HELOC on an ongoing basis, but some people want the option to pay off very little of their HELOC borrowings during the draw period, and then leave the largest amount to repay at the end – this is known as a “balloon payment." This type of repayment plan can be beneficial if you are investing the funds in a major home improvement and are planning to sell your home when the project is finished.

Are there any additional fees with a HELOC?

Some HELOC lenders include fees like early withdrawal fees, inactivity fees, annual account fees, prepayment penalties, and more. Make sure you have a clear understanding of the total fees for your HELOC, not just your interest rate, before you sign.

How are HELOC interest rates different from home equity loan interest rates?

Unlike the fixed interest rates often associated with home equity loans, HELOCs typically use variable interest rates that are pegged to the national prime rate.

With variable interest rates, your rate could go up or down for as long as your HELOC account is open. In contrast, most home equity loans offer fixed rates, which means you know upfront how much interest you will pay on the money you borrow.

As the prime rate moves up or down (often depending on factors of the national economy), your HELOC’s variable rate moves up or down as well. Banks charge variable interest based on the prime rate plus a margin for example, prime rate plus 2%.

This margin will vary by the lender, depending on how competitive they want their loans to be, and based on what rates they can offer to borrowers with different credit ratings and qualifications. However, even as the prime rate moves up or down, the margin your lender charges on top of that rate will remain constant over the life of the loan.

How to refinance a variable rate HELOC to a fixed rate loan

If you are concerned about the financial risks or that the prime interest rate may rise, you can refinance your variable rate HELOC to a fixed-rate home equity loan. These types of loans can provide budget-conscious consumers a way to access the equity in their homes without worrying about fluctuations in monthly payments caused when interest rates rise or fall.

If you want to refinance your HELOC to a fixed rate, there are a few possible costs and complications to keep in mind:

  • Extra fees: Converting to a fixed rate home equity loan will usually require you to pay additional fees, depending on the lender.
  • Minimum borrowing amount: If you're converting to fixed rate, your lender might require you to have borrowed a minimum amount with your HELOC to qualify for the fixed rate. This can reduce the flexibility that can make a line of credit more appealing than a traditional home equity loan.

Closing thoughts: Finding a HELOC rate that fits your budget

A variable-rate HELOC can be a good tool for some people's financial needs, especially if you have a one-time home improvement project or are considering funding a series of home repairs or remodels over the next few years.

For example, if you know you want to build a new garage, remodel your kitchen, and put in new flooring in your upstairs bedroom, but you don't want to finance these projects all at once, having access to a HELOC while you work through your to-do list during the next few years may be a flexible option that matches your needs.

Just don't assume that a HELOC is “free money" — variable interest rates can go up, making it much more expensive to repay the money borrowed from your home equity and making your monthly payments unpredictable.

If you prefer to have regular monthly payments with fixed interest rates, a home equity loan might be a better solution for your financial needs. Unlike a HELOC, a home equity loan lets you set all the details in place upfront, before you get your loan funds. That way, you know how to budget for monthly payments over the life of the loan.

While Discover Home Loans does not offer HELOCs, Discover does offer home equity loans for amounts between $35,000 and $300,000 with no application, origination, or appraisal fees, and no cash is required at closing.

Find your low,
fixed rate

Use our Monthly Payment Calculator to find a rate and payment that fit your budget.


Start your application online or give us a call.

  • Weekdays 8am–Midnight ET
  • Weekends 10am–6pm ET