Home Equity Line of Credit (HELOC) - Best Rates & Products

Home Equity Line of Credit (HELOC)

Homeowners have a valuable tool in creating financial stability and wealth over time with their primary residence. As the mortgage balance is paid down throughout the years and the market value, or the sale price, of the home simultaneously increases, homeowners establish what is known as equity. Having home equity provides homeowners the ability to borrow in a cost-effective way for some of life’s major expenses.

This guide will go over what home equity lines of credit (HELOCs) are, how they work, the pros and cons, and will review some of the banks and lenders that offer them. Read on to learn more or use the Table of Contents to jump to the section that you are interested in.

Understanding HELOCs

The most common type of borrowing from available home equity comes in the form of a home equity line of credit. With a home equity line of credit, homeowners who meet certain qualification criteria can access the available equity in their primary residence with a flexible credit line. A home equity line of credit, sometimes referred to as a HELOC (not to be confused with a home equity loan), works similarly to a credit card in that homeowners can access the money they need when they need it, with few limitations.

The benefit of utilizing a home equity line of credit over a credit card is the lower interest rate available to qualified homeowners. Instead of paying double-digit interest rates, homeowners can expect an interest rate in the single digits. Home equity lines of credit also come with higher credit lines, although these are dependent on the available equity in the property.

Banks and credit unions offer home equity lines of credit to homeowners who have enough equity in their property to qualify. Just because the mortgage balance owed on the home is less than the market value does not mean a homeowner can easily establish a home equity line of credit. Financial institutions have limits regarding what they will offer for a credit line of a HELOC.

Here’s a quick example:

Let’s assume the homeowner knows the market value of her home is $500,000, and a balance of $300,000 is owed on the mortgage loan. The home equity then is $200,000, or $500,000 minus the $300,000 mortgage balance. A HELOC lender only allows a certain percentage of the loan-to-value ratio for a HELOC credit line, often ranging from 80 to 90%. In this scenario, the bank is willing to offer a home equity line of credit for up to 90%. This means that instead of having access to the full $200,000 in equity, the homeowner has access to $150,000. The available credit line is equal to 90% of the market value of the home ($500,000 x .9 = $450,000) minus the current mortgage balance ($450,000 - $300,000 = $150,000).

Home equity lenders limit the amount of equity that can be used to secure a home equity line of credit not only to protect themselves from taking on too much risk but to also safeguard the homeowner from leveraging his or her home.


Current HELOC Rates

As mentioned, interest rates on home equity lines of credit are comparatively lower than other consumer debt, like credit cards and personal loans. The availability of lower interest rates is because the home secures the equity line of credit as collateral, leaving lenders with lower risk should the borrower default on repayment. Interest rates for home equity lines of credit rise and fall in line with broad interest rates, based on several factors that play a role in economic conditions.

The HELOC interest rates from recent months for $30,000 credit lines are provided below as a gauge of how rates on home equity lines of credit move over time. By mid-February, the HELOC rate was up to about 5.66%

Home Equity Line of Credit Interest Rate Trends

Date

HELOC Interest Rate

6/20/2018

5.66%

6/6/2018

5.64%

5/23/2018

5.59%

5/9/2018

5.61%

4/25/2018

5.57%

4/11/2018

5.57%

3/28/2018

5.55%


Best HELOC Products

Many financial institutions, including banks, credit unions, and some online lenders, offer home equity lines of credit to qualified homeowners who have available equity in their home. Each home equity line of credit lender has various loan-to-value guidelines, interest rates, fees and expenses, and credit qualifications for homeowners interested in a home equity line of credit.

Below are some of the best home equity line of credit lenders assisting homeowners in getting affordable access to their home equity today.

LendingTree

LendingTree

Established by an accountant in 1996, LendingTree has become one of the largest online platforms for borrowers to date. The financial institution offers qualified borrowers a variety of financing products through a centralized network of pre-qualified lenders through its website, giving homeowners the ability to view multiple offers in a single location. Borrowers simply enter their information online, including the value of their home and current mortgage balance, as well as some credit history information, and the company compiles a list of lenders willing to offer a home equity line of credit. The homeowner then selects which lender to work with, and she completes the home equity line of credit application requirements with that lender directly.

Lending Tree provides home equity lines of credit that range significantly in terms of the loan-to-value ratio limitations, fees and expenses, and interest rates offered. Because of the network of lenders LendingTree utilizes, homeowners can find an array of home equity line of credit products to fit their specific needs, based on their credit history and score, available equity in the home, and other qualifying criteria such as debt-to-income and earnings. Once a home equity line of credit is applied for and approved, the homeowner works with the specific lender to service the HELOC and make payments as agreed.

PNC Bank

pnc-logo

PNC Bank is a national financial institution offering several traditional banking products and services to its customers, including home equity lines of credit. With more than 160 years in business, PNC is well-known for its lending options for homeowners. Currently, home equity lines of credit through PNC Bank are available with interest rates as low as 3.15% for the most well-qualified borrowers. The lowest available interest rates are offered to homeowners who have at least $150,000 in available home equity, while those with less may qualify for slightly higher interest rates. All interest rates for PNC Bank home equity lines of credit are variable.

A home equity line of credit offered through PNC Bank has several features that benefit homeowners directly, including competitive interest rates and easy access to funds. HELOC accountholders may access their available credit line via check, over the phone, through online transfers, or at any PNC Bank branch location. Homeowners also have the option to repay any amount borrowed after the seven- or ten-year draw period over a 30-year period. PNC Bank also offers interest rate discounts of up to 0.25% when automatic payments are established from a PNC Bank checking account.

Citizens Bank

citizens bank

Headquartered in Rhode Island, Citizens Bank is a well-established financial institution offering banking products and services, including home equity lending solutions. Citizens Bank is currently the 12th largest retail bank in the United States, with more than 1,200 full-service branch locations and a vast network of more than 3,200 ATMs. The financial institution offers home equity lines of credit to qualified borrowers based on their credit history, income, debt obligations, and the appraised value of the home compared to the outstanding mortgage balance.

Citizens Bank offers home equity line of credit accounts to homeowners with an interest rate as low as 3.75%. The lowest possible interest rates are offered to homeowners with the highest credit lines, the strongest credit history, and the most stable income and financial position. Interest rates on HELOCs through Citizens Bank are variable and may fluctuate over time. Homeowners have the ability to draw on a home equity line of credit for a 10-year draw period, followed by a repayment period of up to 30 years. The financial institution does not assess any closing costs for a new home equity line of credit nor an application fee, and an interest rate discount is available for borrowers who establish automatic payments from a Citizens Bank checking account.

Bank of America

bank of america

As a global financial institution, Bank of America serves more than 47 million individuals and businesses throughout 35 countries. Within the United States, Bank of America offers a variety of home equity products to help homeowners achieve their financial goals. The home equity line of credit through the financial institution is available to homeowners with strong credit history, available equity in their primary residence, and a stable income that can be verified.

Home equity lines of credit made available through Bank of America come with a variable interest rate that may change over time. Currently, the lowest possible interest rate for a HELOC is 2.99% for the first 12 months after establishing an account. After that time, the lowest possible interest rate is 4.43% for the most qualified homeowners. A HELOC with Bank of America has a 10-year draw period, followed by a repayment period that may extend up to 30 years. Homeowners may access their HELOC funds through online banking, bill pay, or checks provided at the time an account is opened. Bank of America does not charge an application fee or closing costs to open a new home equity line of credit, and interest rate discounts are available for borrowers who establish automatic payments from a qualified Bank of America account.

Wells Fargo

wells fargo

As one of the largest financial institutions in the United States, Wells Fargo is widely known for its banking products and services. The national bank offers a variety of home equity products to qualified homeowners, including home equity lines of credit, based on the creditworthiness, income, outstanding debt, and available home equity. The financial institution currently serves more than 70 million customers through a network of branch locations and ATMs throughout more than 35 countries.

Home equity lines of credit available through Wells Fargo come with a variable interest rate as low as 3.24% for the first year after opening an account. HELOC interest rates may adjust up or down based on overarching interest rates, and borrowers have access to lock in a fixed interest rate loan against their line of credit within the first several years of having an account. Wells Fargo HELOCs come with a 10-year draw period followed by a 20-year repayment period. Homeowners do pay an annual fee of $75 as well as account opening fees which vary from state to state, and a prepayment penalty of up to $500 may be assessed if the home equity line of credit is closed within the first three years. Relationship discounts are available to certain homeowners, based on the type of accounts already established and in good standing with Wells Fargo.

Chase Bank

Chase Bank

Chase Bank is most prominently known in the credit card market, but the global financial institution also offers home equity lines of credit to qualified homeowners. Chase Bank has a longstanding history of serving customers in the United States through more than 5,100 full-service branch locations and a vast network of fee-free ATMs. The financial institution also has a robust online banking platform for customers to manage their financial lives and each of their Chase Bank products.

The home equity line of credit offered by Chase Bank has a variable interest rate as low as 4.50% and up to 6.89% for credit lines between $50,000 and $99,000. The most qualified homeowners who are eligible to receive the lowest advertised interest rate have verifiable income, a low loan-to-value ratio, and strong credit history. Chase Bank HELOCs come with a 10-year draw period during which the credit line may be accessed, followed by a repayment period that can extend several years. Homeowners may access their home equity line of credit through online banking, home equity checks, or by visiting a branch location or ATM. An annual fee of $50, an origination fee of $50, and closing costs may be assessed.

US Bank

US Bank

Headquartered in Ohio, US Bank, a subsidiary of US Bancorp, is a national financial institution serving customers throughout the United States. The bank provides a myriad of conventional banking products and services to its customers, including home equity lines of credit to homeowners. The financial institution is one of the top-rated banks in the country, and currently, it serves millions of individuals through more than 3,100 full-service branch locations and a large network of ATMs.

Homeowners who qualify for a US Bank home equity line of credit may receive an interest rate as low as 4.65%. The interest rate on a HELOC from US Bank is variable for all borrowers, and the lowest possible rate advertised is based on a credit line of up to $100,000, a loan-to-value ratio of no more than 70%, and a credit score of at least 730. Borrowers who do not meet these qualification requirements may be approved for a home equity line of credit with a higher interest rate. US Bank does not charge closing costs on new home equity line of credit accounts, but an annual fee of up to $90 may be assessed. Homeowners may draw on their HELOC during the initial 10-year period, after which time interest and principal payments are due each month until the balance is paid in full.

SunTrust

SunTrust Financial was founded in 1985, and since that time, the financial institution has grown to serve millions of banking customers throughout the Southeast United States. SunTrust offers a variety of banking products and services through its more than 1,200 branch locations and ATMs, including home equity lines of credit. Homeowners with a SunTrust home equity line of credit have a strong credit history, a low loan-to-value ratio on their primary residence, and verifiable income.

SunTrust offers home equity lines of credit with an introductory interest rate as low as 2.99% for the first 12 months, after which time the interest rate can be as low as 4.25%. All interest rates on SunTrust home equity lines of credit are variable. Credit lines available through a SunTrust HELOC range from $10,000 up to $500,000, based on the property’s loan-to-value ratio, and draws can be made against the available credit line for ten years. Repayment of a SunTrust home equity line of credit can extend up to 20 years after the draw period. An annual fee of $65 is charged, but there are no closing costs assessed at the time an account is established. Homeowners who establish automatic payments from a qualified SunTrust account can receive an interest rate discount of up to 0.25%.

BB&T Bank

BB&T logo

Established in 1872, BB&T Bank has a long history of helping individuals achieve their financial goals through conventional banking products and services. The national bank offers home equity lines of credit to eligible homeowners, based on credit history and score, income stability, and the loan-to-value ratio of the home used as collateral for the credit line. BB&T provides home equity lines of credit through its network of more than 2,100 branch locations throughout 15 states and the District of Columbia.

Homeowners who qualify for a BB&T home equity line of credit can receive an interest rate as low as 2.99% for the first 12 months after establishing an account. After the introductory period ends, borrowers have a variable interest rate as low as 4.24%. The draw period for a BB&T home equity line of credit can extend up to 10 years, and repayment can take place over several years after the draw period ends. BB&T does offer a no closing cost option for new home equity lines of credit, but an origination fee and an annual fee apply.

M&T Bank

m&t bank

Established more than 160 years ago, M&T Bank provides banking products and services to communities located throughout the Northeastern United States. In addition to deposit accounts and personal lending, the regional financial institution also offers home equity lines of credit to qualified borrowers. Homeowners who have a low loan-to-value ratio on their primary residence, strong credit history and score and verifiable income may qualify for a home equity line of credit with M&T.

Home equity lines of credit available through M&T Bank have a variable interest rate as low as 4.51%. Borrowers have the ability to draw on a home equity line of credit from the bank for up to 10 years, after which time the repayment period can extend up to 20 years. Homeowners can access their available home equity line of credit limit through branch locations, ATMs, online banking, or convenience checks, and there are no application or origination fees. M&T Bank does not charge closing costs on new home equity lines of credit so long as the account remains open for at least three years. Individuals with qualified deposit accounts who also establish automatic payments may be eligible for an interest rate discount on their HELOC up to 0.25%.


Using a Home Equity Line of Credit

Borrowing against one’s home with the help of a home equity line of credit may not seem like the simplest option for financing life’s major expenses. However, a home equity line of credit often comes with a much higher credit limit than traditional credit cards as well as a lower interest rate over time. The combination of these factors allows homeowners to pay for big-ticket items, including but not limited to:

The benefits of utilizing a home equity line of credit in lieu of other consumer debt tools include not only a lower cost of borrowing but also an extended repayment period. Most home equity line of credit lenders allow homeowners to repay the principal and accrued interest on a HELOC over 20 or 30 years. This makes paying for a large expense more manageable on a monthly basis for most homeowners.


Breaking Down the Numbers of a HELOC

While a home equity line of credit can be a valuable tool to qualified homeowners, there are costs associated with its use. First, the interest rate on a HELOC works like any other consumer debt interest rate in that it adds to the total cost of borrowing over time. The longer a homeowner waits to repay a home equity line of credit balance, the more interest will accrue on the account that will need to be repaid over time. Interest rates for home equity lines of credit are variable, and so the total cost of borrowing may increase as the principal balance remains outstanding.

Some lenders also charge fees for simply having a home equity line of credit. An annual fee may be charged each year the HELOC is open, typically ranging from $50 to $100 per year. Lenders may also assess a fee for drawing on the line of credit, although these charges are often minimal. Borrowers should be aware of the added costs of using and maintaining a home equity line of credit before signing on the dotted line.

Repayment of home equity lines of credit can extend several years, and each lender differs in terms of how payments due are calculated. Some lenders offer an interest-only option for HELOC payments during the initial draw period, followed by principal and interest payments throughout the duration of the credit line. Other lends allow homeowners to make full interest and principal payments during the repayment period only. Either option has benefits and drawbacks that should be considered before drawing on a home equity line of credit.


Understanding the Risks of HELOCs

There are a handful of risks in using a home equity line of credit given the financing tool is tied to the borrower’s primary residence. First, failing to repay on a home equity line of credit means the financial institution has rights to recoup losses from the home itself. Because home equity lines of credit are flexible in terms of how much can be utilized over time, some homeowners may find themselves in a situation where they have borrowed too much, and monthly payments are not easy to manage. Interest rate fluctuations may also lead to payment difficulties for homeowners as HELOC rates are variable. When interest rates rise, the monthly payment also increases, leaving homeowners with tight cash flow in a bind.

Home equity lines of credit, like other types of consumer debt, also have an impact on one’s credit history and score. Financial institutions that offer HELOCs report to the three major credit bureaus (Equifax, Experian, and TransUnion), and failure to repay per the terms of the agreement show up as a negative mark on each credit file. Borrowing too much based on an individual’s income and other outstanding debt obligations may also negatively impact one’s credit score over time.

To ensure the home equity line of credit used to access equity in the home is most appropriate and cost-effective for a homeowner’s needs, it is important to prepare financially in advance of submitting an application. This means taking a close look at one’s credit history and score to ensure the qualification criteria are met before applying, and potentially cleaning up any negative marks on one’s credit before having a conversation for a lender. It is also important to have an idea of the market value of the home since this is a critical component of the home equity line of credit application process. Individuals who have a high mortgage balance compared to the home’s value will likely not qualify, regardless of how strong their credit history is. Overall, taking these steps before speaking with a lender about a home equity line of credit is necessary to ensure the new HELOC is affordable both now and in the future.