How to Get the Best HELOC Rate (2024 Guide) (2024)

Many factors influence the interest rates lenders offer on HELOCs, including your credit score, your debt-to-income ratio (DTI), the amount of home equity you can tap into and your credit history.

Credit Score

Your credit score is one of the main determinants of your HELOC’s interest rate, as it represents your reliability as a borrower. If you have a high credit score, your lender will likely offer you a lower interest rate because the lender perceives you as being less of a risk.

A credit score of 760 or above is ideal when you are shopping for a deal on your home equity line of credit. You can improve your credit score by consistently making existing credit payments on time, disputing any errors on your credit report and keeping your credit balances low.

Debt-to-Income Ration (DTI)

Much like your credit score, your DTI ratio helps lenders determine how risky it is to lend to you. Debt-to-income ratios measure your existing debt against your gross monthly income. If your DTI ratio is too high, lenders may not be confident that you will be able to repay your loan on time every month.

When looking for a new line of credit such as a HELOC, it’s helpful to have a DTI ratio below 36%, which may help you secure a lower interest rate.

Other Factors

Other variables that lenders may look at include your tappable home equity and your credit history. You are more likely to get a better interest rate on your HELOC if you have 20% or more equity in your home.

Your credit history, however, is a little more complicated. Your credit history tells lenders how you have previously used credit. Lenders typically offer the best rates to applicants with low credit utilization and a mix of different credit types.

Below are a few strategies that may help you get the best HELOC rate and pay less interest in the long run.

1. Compare HELOC Lenders and Get Multiple Quotes

One way to get a better interest rate on your HELOC is to get quotes from several lenders online before beginning the application process. While it may be tempting to get a HELOC with your existing mortgage provider, you could be signing yourself up for a higher rate than necessary by settling for the first lender to give you a quote.

There are different lender types, so it’s important to look at different banks, federal credit unions and online lenders before applying for a HELOC. When comparing lenders, review loan terms, fees and rates to do a side-by-side comparison. The best way to do this is to create a comparison table where you can fill in specific terms for each lender.

Additionally, research lenders to find out what it’s like to work with them. Online ratings and reviews may help you get a better understanding of what it’s like to work with a lender from a borrower’s perspective.

It’s also important to find out how long the lender has been in business and what the company’s reputation is before signing a HELOC agreement. Websites such as the Better Business Bureau may allow you to see reviews and ratings so you can find the best HELOC lender for your financial situation.

2. Negotiate with Lenders

Another strategy that can help you get better rates and terms on your HELOC is to negotiate. The lender may be open to negotiation after giving you a quote, especially if you have a previous relationship with the company. To get some leverage in your negotiations, get competing offers from other lenders.

Some lenders may be firm in their initial rates, but it may be worth a try to negotiate other areas of the quote like rate locks and origination fees to get the best deal possible.

3. Consider Locking In Your Interest Rate

Since most HELOCs come with a variable interest rate, this leaves room for volatility in the interest portion of your payment as the market fluctuates. Depending on the current state of the economy, it may be worth considering a HELOC with a rate lock or fixed-rate option.

Securing your interest rate for a specific period may remove the worry that market volatility will affect your ability to repay the loan. In some cases, having a fixed interest rate may allow you to secure a lower interest rate than you’d pay with a variable rate subject to market rises.

On the other hand, this same principle could also work against you. If market rates drop, you might miss out on lower rates and lower payments. Ultimately, it’s important to understand how market fluctuations are expected to affect your interest rates before taking advantage of a fixed-rate HELOC.

Of course, the terms of rate lock options depend on your lender. You may have to pay a fee for the privilege of using a rate lock or commit to a specific duration of time in which the fixed rate is in effect. Speak to your lender about your options to potentially hedge against the risk of variable interest rates costing you more down the line.

4. Add a Qualified Co-Borrower

Adding a co-borrower to your HELOC can be a valuable option when you are trying to get a lower interest rate on your line of credit. A co-borrower signs on for the HELOC with you, taking on liability for repayment. Adding a co-borrower to your HELOC may help you get a lower interest rate if the co-borrower has good credit.

Having a co-borrower on your HELOC allows you to reap the benefits of combined incomes. With a co-borrower, the lender uses both incomes to determine the terms of the line of credit, which can potentially reduce your interest rate. It’s important to keep in mind that the process of adding a co-borrower means they accept responsibility for the HELOC and are also liable for repayment.

5. Improve Your Financial Profile

To get the best HELOC rates, make sure your financial profile is in order. Your financial situation and credit history tell lenders how you will handle the repayment of any lines of credit you open in the future.

Before you apply for a new line of credit, pay down existing debts to lower your credit utilization and free up income to make your new monthly payments. Establishing and maintaining healthy financial habits shows lenders that you can manage your money responsibly and handle the repayment obligations on a HELOC.

6. Understand the Prime Rate

The interest rate on your HELOC is determined by the prime rate plus an additional margin added on by the lender. The prime rate is set by commercial banks and is the best rate that lenders will charge their most creditworthy customers. It is typically based on the underlying federal funds rate.

Though the Federal Reserve doesn’t directly determine prime rates, it does control the federal funds rate. Because the prime rate is based on the Federal Reserve’s federal funds rate, the prime rate is often impacted by rate hikes or rate reductions.

The Federal Reserve can raise the federal funds rate based on economic conditions to influence economic behaviors. In turn, variable interest rates, such as HELOC interest rates, can increase over time in response to rate hikes.

7. Refinance Your HELOC to a Lower Rate

If you already have a HELOC, you may qualify to refinance your line of credit to get a lower interest rate. It’s important to monitor rate movements to determine whether a refinance would be beneficial for you. If you can refinance with a lower rate, you may have smaller monthly payments and accrue interest at a lower rate than you would have with your original HELOC.

When considering refinancing, however, make sure you understand all the costs involved, such as origination fees, annual fees and other closing costs. There also may be prepayment penalties associated with paying off your existing credit line early. Additionally, refinancing your HELOC likely means you will start a new repayment period, potentially costing you more in interest in the long run.

If you need additional funds, you can also consider a cash-out refinance or a home equity loan. Cash-out refinancing involves replacing the current loan on your home with a new loan at a higher market value. This allows you to repay the old loan on your home and get the remaining balance — your equity in the home — in cash as a lump sum.

8. Maintain Good Financial Habits

If you’re looking to get the best rates over the lifetime of your HELOC, maintain long-term financial responsibility. Healthy financial habits practiced consistently can get you the best rates possible because it shows lenders you are more likely to make repayments on time.

Continually monitor your credit and practice good money management skills to qualify for preferable interest rates from lenders and increase your ability to make payments on your current and future financial obligations.

When it comes to getting a home equity line of credit, you want to get the best interest rate possible. Since HELOCs let you borrow against the equity you have in your home, you want to borrow at an interest rate you can reasonably afford while saving on the overall interest you owe.

To get the best rate possible on a HELOC, take advantage of the key strategies covered above. Compare different HELOC lenders and don’t be afraid to negotiate to get the best interest rates and terms. Additionally, consider options like rate locks or adding a co-borrower to your line of credit to reduce the overall interest you pay over the lifetime of your HELOC.

Ultimately, staying informed and monitoring your financial habits can help you get the best interest rate on your HELOC.