A home equity line of credit allows you to leverage the equity in your home at a relatively low interest rate. Whether you want to fund renovations to increase your home’s value, put a child through college or consolidate high-interest debt, a home equity line of credit can provide the financing you need.
But before you commit to a HELOC, it’s important to learn how the loan works and what you need to qualify.
U.S. News has selected top HELOC lenders that you can consider to meet your borrowing needs.
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AmeriSave Mortgage Corp. is an online lender that has been in business since 2002. It was one of the first to offer an offsite digital mortgage experience for customers. The company says it has financed more than 664,000 borrowers since it began operating. With headquarters in Atlanta, AmeriSave services loans in 49 states and Washington, D.C.
Pentagon Federal Credit Union, widely known as PenFed, offers borrowers access to many types of mortgages: conventional, adjustable rate, jumbo and Department of Veterans Affairs, plus refinancing loans and home equity lines of credit. The financial institution, which serves 2.8 million members, was established in 1935 and is based in McLean, Virginia.
PNC Bank is one of the largest banks in the United States, serving more than 9 million customers in all 50 states. A full-service mortgage lender, PNC offers most mortgage loan product types.
Bank of America serves roughly 67 million customers in all 50 states. The lender offers conventional, Federal Housing Administration, Department of Veterans Affairs and jumbo loans as well as home equity lines of credit and mortgage refinancing.
Guaranteed Rate, founded in 2000 and based in Chicago, offers mortgage options including conventional loans, FHA loans, jumbo loans and interest-only loans to customers in all 50 states and Washington, D.C. Borrowers can take advantage of specialized loan products and Guaranteed Rate’s online application, documentation and loan payment options.
Wells Fargo offers a variety of mortgage products nationwide. Options include conventional, government-backed and jumbo loans. You can also refinance an existing mortgage with Wells Fargo.
Chase, one of the world’s largest banks, was founded in 1799 in New York and offers fixed-rate, refinance and other mortgage loans.
Alliant Credit Union is a not-for-profit financial cooperative that serves customers in all 50 states. Alliant offers products such as conventional, jumbo, refinancing and home equity line of credit loans, but specific mortgage products may not be available in certain states.
Navy Federal Credit Union serves more than 10 million active-duty and retired military, veteran, and Department of Defense members as well as their families. Founded in 1933 and based in Vienna, Virginia, this not-for-profit credit union offers a range of products, from credit cards to auto loans. Navy Federal is the largest credit union in the U.S., with $160.5 billion in assets and 349 branches worldwide.
Flagstar offers banking and loan products to borrowers in all 50 states. Borrowers can obtain mortgage and home equity products including conventional loans, Federal Housing Administration loans, Veterans Affairs loans, U.S. Department of Agriculture loans, adjustable-rate mortgages, and home equity loans and lines of credit.
The average HELOC rate for loans with a 10-year repayment period is currently at 7.36%, which is down 0.03 percentage points from last week. The rate on a 20-year HELOC is at 8.07%, down 0.02 percentage points from last week. On a 30-year HELOC, the rate is 6.79%, unchanged from last week.
This analysis is powered by Bankrate, which gathers data from applicants who prequalify for HELOCs through its website and affiliates.
A home equity line of credit is a form of revolving credit that is secured by your home. Similar to a credit card, you can borrow against the credit line as needed – up to the limit. When you do so, you pay interest on the balance. As you pay the balance down, more of your credit line opens back up.
Unlike a credit card, however, HELOCs have what’s known as a draw period. This is the time when you’re allowed to spend against your credit limit and are only required to make minimum or interest-only payments. Typically, the draw period lasts 10 years and the repayment period lasts 20 years.
Home equity loans and lines of credit each allow you to borrow against the equity in your home. However, there are some key differences. A home equity loan is dispersed as one lump sum that you pay back in fixed installments over time. A HELOC allows you to borrow as much or as little as you need, when you need it, up to the maximum credit limit. Once the draw period is over, you enter the repayment period. HELOC interest rates are often variable rates, meaning they can adjust up or down over time.
Find the Home Equity Lender That’s Right for You
Most lenders won’t issue a HELOC unless your combined loan-to-value ratio is at most 85%, according to Bank of America. Exact credit score requirements vary by lender. You may be able to qualify for a HELOC with a score of 660, according to Credit Union of Southern California, though some lenders ask for a higher score. A higher score can also help you secure better rates and terms. A lower debt-to-income ratio will leave you in a better position to get a loan.
HELOCs often have lower rates than home equity loans. Plus, if your borrowing needs change month to month, a HELOC is a great way to ensure you have access to credit when you need it.
Another perk is that HELOC interest may be tax deductible. If you use your HELOC funds to substantially improve your home, you may be able to write off the interest on your taxes.
On the downside, your property serves as the collateral for a HELOC. That means if you have trouble making payments once the draw period is up, your home could eventually be at risk of foreclosure. In addition, when you borrow against your line of credit, you decrease the equity in your home. If you decide to sell, you’ll see a smaller profit since you’ll also need to pay off your HELOC. And if home values drop, you could owe more on your house than it’s worth.
Also consider that unlike installment loans, the interest rates on HELOCs are variable. While there’s a chance your rate could go down, it’s more likely that it will increase.
- Home equity loan. If you don’t anticipate any ongoing borrowing needs and only need to finance a specific expense, you may prefer to take out a home equity loan. This allows you to receive the cash you need up front and then pay it off in fixed monthly installments over five to 30 years.
- Refinance. Another way to access your home’s equity for cash is through cash-out refinancing. This involves taking out a new mortgage loan for more than you currently owe and pocketing the difference to put toward another expense. This can be particularly beneficial if you can qualify for a lower mortgage rate.
- 0% APR credit card. Some credit cards offer a 0% annual percentage rate to new users for an introductory period that typically lasts 12 to 21 months. If you go this route, it’s important to pay off your balance before the introductory period is up. Otherwise, you could rack up interest charges quickly when the rate adjusts.
- Personal loan. Though they usually come with higher interest rates than HELOCs, personal loans can be a less expensive borrowing option than credit cards. Plus, you don’t have to use your home as collateral, which means it’s not at risk of foreclosure if you fall behind on payments.
To recap, here are the picks:
Best HELOC Lenders of 2023
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