Best HELOC Rates of January 2024

What are HELOC Rates?

A home equity line of credit (HELOC) is a variable-rate product akin to a credit card, offering a flexible credit line secured by your home equity. HELOC rates fluctuate with a benchmark interest rate, usually tied to the prime rate. Payments depend on the interest rate and your usage of the credit line.

During the draw period, typically the first 10 years, you can borrow from your available equity as needed, with the option for interest-only payments. The repayment period follows, lasting from 10 to 20 years, during which you cannot borrow anew, and repayment of the principal begins.

Best HELOC Rates of January 2024

In January 2024, potential borrowers seeking Home Equity Line of Credit (HELOC) options can explore various lenders with competitive rates and terms. Bethpage Federal Credit Union stands out with fixed-rate options, catering to those who prefer stability in their repayments. Bank of America offers flexibility with loan amounts ranging from $15,000 to $1 million and emphasizes low fees.

TD Bank prioritizes in-person service, providing a hands-on approach to meet borrowers' needs. Citizens and Flagstar Bank offer options suitable for those seeking lower loan amounts or with specific credit requirements, while Connexus Credit Union provides fast approvals for efficient processing.

Each aspect contributing to the score is assigned an equal weight of 25%. This includes the interest rate, minimum credit score requirements, closing timelines, and lender fees.

Additionally, lenders who underwrite home equity loans receive a bonus of five points, recognizing their provision of a broader spectrum of equity loan options. This comprehensive scoring system ensures a well-rounded evaluation of loan and lender features.

How Do HELOC Interest Rates Work?

HELOC interest rates operate in correlation with the prime rate, utilized by banks for lending to well-qualified customers. Typically variable, HELOC rates can fluctuate over time. However, certain lenders provide fixed-rate HELOCs, enabling borrowers to secure a set interest rate and monthly payment for either the entire balance or a portion of it.

National HELOC Interest Rate

As of January, the national average interest rate on home equity lines of credit (HELOC) stands at 9.31%, slightly down from 9.32% the previous week, according to survey of major lenders. HELOC rates are subject to change based on the prime rate, linked to Federal Reserve policies.

The Federal Reserve, announcing a pause in rate hikes on December 13, suggested a potential shift to rate cuts in the coming year. Experts anticipate a possible improvement in home equity rates in 2024, with HELOC rates on a downward trend.

How Can You Get the Best HELOC Rate?

To secure the best HELOC rate, start by seeking a competitive interest rate, favorable repayment terms, and minimal fees. The lenders mentioned are chosen based on factors like APR, loan amounts, fees, credit requirements, and overall accessibility. Before beginning your search, ensure you meet lenders' prerequisites and take steps to enhance your credit score.

Pay down significant credit card balances and consider settling an approaching auto loan. After preparation, compare offerings from multiple lenders, obtaining quotes from at least three, and carefully scrutinize fees and terms alongside the interest rate to assess the overall APR.

What are the Pros and cons of HELOCs?

HELOCs offer the advantage of marrying relatively low interest rates with the flexibility to borrow funds as per your requirements and timeline. It becomes an ideal financial tool when you anticipate needing funds over an unpredictable duration. Nevertheless, obtaining a loan, particularly one secured by your home, involves inherent risks. Here are crucial factors to consider when contemplating a HELOC.

Pros of HELOCs

• HELOCs provide flexibility, allowing borrowers to tap into home equity as needed.
• Typically, HELOCs involve lower upfront costs compared to home equity loans.
• Interest rates on HELOCs are generally lower than those associated with credit cards.
• HELOCs often come with low or no closing costs.
• Interest is charged only on the actual amount of money used.

Cons of HELOCs

• Some lenders may require minimum draws, limiting flexibility.
• Interest rates on HELOCs can adjust upward or downward.
• Lenders may charge different fees, including annual fees, application fees, cancellation fees, or early closure fees.
• Late or missed payments can negatively impact credit and put the borrower's home at risk.