Shopping for a HELOC: How to Get the Best HELOC Rate in 12 Steps

A home equity line of credit (HELOC) is a great tool for tapping into the equity you’ve built in your home to cover major expenses, such as home renovations, large medical bills, moving costs, weddings, or debt consolidation. But not all HELOCs are created equal.

To get the best HELOC rates and most favorable terms and conditions, you’ll have to do a little more work. Below, we’ll walk you through all the steps to find the best HELOC for your needs.

If you’re ready to start shopping, here are our top recommendations.

Table of Contents

1. 1. Make sure a HELOC is right for you
2. 2. Build up enough equity in your home
3. 3. Keep your CLTV low
4. 4. Focus on your credit score and income
   1. Credit score
   2. Debt-to-income ratio
5. 5. Apply with a co-borrower or cosigner
6. 6. Broaden your HELOC search
7. 7. Understand how HELOC rates work
8. 8. Be strategic with introductory rates
9. 9. Choose a shorter term
10. 10. Ask about rate discounts
11. 11. Negotiate with lenders
12. 12. Leave the door open to refinancing
13. Other HELOC shopping tips
14. Start shopping for a HELOC

1. Make sure a HELOC is right for you

First things first: Is a home equity line of credit even the right loan product for you?

It’s important to understand how HELOCs work, because they’re a little more complicated than straightforward installment loans, such as:

• Personal loans, which don’t use your home as collateral, and
• Home equity loans, which also let you borrow against your equity but are designed as lump-sum loans, rather than revolving credit.

Borrowing against the equity in your home can be risky; if you default on the loan, your house serves as collateral. If you’re not comfortable with that, you can finance purchases using a personal loan or credit card.

Home equity loans and HELOCs offer more competitive interest rates and longer repayment terms, however. This can make them more affordable in the long run.

The key difference between a home equity loan and HELOC is how the loan is processed: Home equity loans are a simple lump sum upfront, while HELOCs allow you to borrow as needed during a lengthy draw period (often five to 10 years).

Here’s a breakdown of the options you might be considering.

	HELOC	Home equity loan	Credit card	Personal loan
Collateral	Your home	Your home	No (unless secured)	No (unless secured)
Interest rates	Lower	Lower	Higher	Higher
Access to credit	Ongoing during draw period	Upfront lump sum	Ongoing	Upfront lump sum
Ease of qualifying	Requires home ownership and good credit	Requires home ownership and good credit	Available to borrowers with fair and even bad credit	Available to borrowers with fair and even bad credit

First ask: What do you need the funds for, and when do you need them? Review the differences between loans and lines of credit to see which one best fits your needs. Then, shop for the best rate and solution (items 6, 7, and 8 below). Depending on the equity loan provider, there may be an opportunity to obtain discounts or possibly negotiate a lower rate (items 10 and 11 below).

2. Build up enough equity in your home

Generally speaking, you need 15% to 20% equity in your home to qualify for a HELOC, though some lenders may accept less. Lenders typically offer a lower interest rate on HELOCs to borrowers with more equity, since they represent a lower risk.

Thus, it might make sense to wait to apply for a HELOC until you’ve amassed more home equity. You can do this in two ways:

1. Paying down your mortgage: The more you pay toward your mortgage, the more equity you earn in your home.
2. Increase the value of your home: Make value improvements to your home, or simply get your home reappraised when the market’s in an upswing. By increasing your home’s appraised value, the amount you still owe the lender represents a smaller percentage of your home’s overall value—and thus your equity increases.

Not sure how much equity you have? Use our home equity calculator to get a rough idea before applying for a HELOC.

3. Keep your CLTV low

Amassing enough equity in your home is important not just to get a lower rate, but also to meet another lender requirement: combined loan-to-value (CLTV).

The CLVT measures the amount you still owe on your mortgage plus the amount you want to borrow via a HELOC against the appraised value of your home.

For instance, assume you:

• Owe $150,000 on your home.
• Want a HELOC for $75,000.
• Get your home appraised for $300,000.

To calculate your CLTV, do the following calculation:

(Current loan balance + Desired HELOC amount) / Appraised home value

Using our example:

($150,000 + $75,000) / $300,000 = .75, or 75%

A CLTV of 75% is typically low enough to qualify for a HELOC. Most lenders want to see a CLTV of 80% or less, though some lenders may allow a higher percentage.

Generally speaking, a lower CLTV results in a better HELOC rate. Learn more about loan-to-value requirements for HELOCs before applying.

4. Focus on your credit score and income

Two key factors lenders consider when determining if you qualify for a HELOC (and at what rate) are your credit score and debt-to-income (DTI) ratio.

Credit score

Based on our research, you’ll need a credit score of 720 or higher to qualify for a HELOC from most lenders. If yours is lower than that, you can check out our picks for the best HELOCs for fair credit, or you can work to improve your score.

You can’t improve your credit score overnight, but in six months to a year, you can make great strides toward a higher score. Here are some easy ways to improve your credit score over time:

• Make on-time payments on all bills reported to credit bureaus.
• Pay down high credit card balances (and stop using the cards for new purchases) to reduce your credit utilization.
• Review your credit report and dispute any errors you find.

Debt-to-income ratio

Most HELOC lenders prefer a debt-to-income ratio below 43%. That means your monthly debt obligations make up 43% or less of your monthly income. That means you can take two strategies to reduce your DTI:

• Lower your monthly debts: You can do this by paying off debts entirely or refinancing to a lower monthly payment.
• Increase your monthly income: Ask for a raise, get a second job, or start a side hustle.

5. Apply with a co-borrower or cosigner

When you own a home with a spouse, partner, or another loved one, you may be able to apply for a HELOC together, since both your names are on the mortgage. This could improve your approval odds and rates if the co-borrower has a better credit score or notable income.

But what about a domestic partner, parent, or someone else who shares the home with you but isn’t listed on the mortgage?

You can certainly apply for a HELOC without their consent, but if they have a stronger credit score and a large income, it may be to your benefit to apply for a HELOC with them as a cosigner. This isn’t a common option with HELOCs, but we have found a couple of HELOC lenders that allow cosigners.

6. Broaden your HELOC search

When you’re actually ready to start shopping for a HELOC, the number one way to find the best HELOC rates is to compare multiple lenders. Never go with the first lender you find.

Instead, start with your personal bank, but also consider local banks and credit unions. You can also easily research and compare online HELOC lenders by using an online loan marketplace, such as LendingTree.

7. Understand how HELOC rates work

HELOC rates and repayments are a lot less straightforward than they are for home equity loans. Make sure you have a full understanding of how the HELOC interest is calculated during both the draw and repayment periods.

Most importantly, note that most HELOCs have variable rates, though it’s possible to find some fixed-rate HELOCs or to convert some of your HELOC balance to a fixed rate via a rate lock. See what options each lender offers, and ask lenders about their rate caps on variable-rate lines of credit.

8. Be strategic with introductory rates

Some lenders offer introductory rates (or teaser rates), which are notably lower rates for the first six to 12 months of the HELOC. While these can be tempting, the rates often jump significantly higher when the intro period ends.

Read all the fine print to understand what your rate will be after the introductory period, and take that higher rate into consideration when comparing against other lenders. Here are the best HELOC introductory rates currently available; our top pick is FourLeaf, which offers a 5.99% rate fixed for 12 months.

9. Choose a shorter term

If you’re using a HELOC to fund a short-term project and are confident you can pay it off quickly, opt for a HELOC with a shorter draw period and repayment term. Generally, lenders offer lower rates on shorter HELOCs.

Even without the lower rate, you’ll pay less in interest over the life of the HELOC with a shorter-term option because there are fewer monthly payments overall.

10. Ask about rate discounts

The best HELOC rates advertised by lenders often include all available rate discounts. To get that lowest rate, check to see if you qualify for all of the discounts the lender offers.

HELOC lenders commonly offer discounts for:

• Setting up autopay
• Opening an associated checking account
• Qualifying for a loyalty bonus as a current customer

11. Negotiate with lenders

Some HELOC lenders may offer rate-match guarantees. If you qualify for a lower rate with Lender A but prefer the terms and fees with Lender B, it’s worth asking that second lender if they’ll honor the lower rate you qualified for elsewhere.

Many lenders openly advertise a rate-match guarantee, but always read the fine print. Often, lenders will only match a rate from direct competitors or only if the loan terms match.

Through technology, there has been an advancement in the providers that offer different types of home equity solutions. If you are looking at both online and traditional brick-and-mortar providers (e.g. banks and credit unions), you may be able to negotiate with different providers to match offers. I’ve seen several instances where clients were able to get lower rates and/or better terms by having institutions match offers from other institutions. 

12. Leave the door open to refinancing

Don’t love the rate you got? You can potentially refinance your HELOC during the draw period or the repayment period, either with another HELOC, a home equity loan (with a fixed rate), or a new mortgage via a cash-out refinance (and use the extra cash to pay off the HELOC).

Other HELOC shopping tips

Rates are an important consideration when choosing a HELOC lender, but don’t become so laser-focused on them that you don’t consider other factors. Here are some additional tips to help you choose the best HELOC lender, comparing more than just rates:

• Don’t forget about fees: Interest rates aren’t the only expense with a HELOC. You’ll also pay an origination fee, and you may have to pay annual fees, inactivity fees, or lock-in fees (if locking in a rate). Ask each lender for a full fee structure so you can compare and make the best decision.
• Watch for minimum draw requirements: Some HELOC lenders set minimum draw requirements, meaning you may be forced to borrow more than you want.
• Consider funding speeds: Some HELOCs close faster than others. If you need money ASAP, prioritize a HELOC lender advertising a fast close.

Start shopping for a HELOC