Homeowners in need of cash may be able to leverage their property’s equity with a home equity line of credit, or HELOC. But, keep an eye on rising interest rates.
Interest rates for HELOCs are variable and largely determined by the benchmark interest rate, which is set by the Federal Reserve. To combat inflation, the Fed has raised the benchmark interest rate nine times since last spring. By making it more expensive to borrow money, the Fed hopes to trim consumer spending to help slow the economy and stall stubborn inflation. As a result, interest rates for HELOCs have been on the rise.
However, HELOCs tend to offer more competitive rates than personal loans or credit cards, making them an attractive option for borrowers in need of a cash infusion.
“We continue to see healthy competition among lenders and plenty of HELOC offers available for qualified borrowers at rates lower than prime, sometimes as low as a full percentage point below prime,” says Adam Boyd, head of home equity lending at Citizens.
Homeowners with at least 15% to 20% equity in their home can use a HELOC to withdraw cash from it without disturbing the rate on their primary mortgage.
Here are CNET’s picks for the best HELOC lenders of April 2023, as well as more on how these lines of credit work.
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Top HELOC rates for May 2023
| Lender | APR | Introductory APR | Loan amount | HELOC terms | Max LTV |
| U.S. Bank | 8.20% to 12.80% | N/A | $15,000 – $750,000 (up to $1 million for properties in California) | 10-year draw period, unspecified repayment period | 80% |
| TD Bank | 7.84% (0.25% TD checking account discount included) | N/A | From $25,000 | 10-year draw period, 20-year repayment period | 89.99% |
| Connexus Credit Union | From 4.49% | 4.50% for first six months, 7.99% thereafter | $5,000 – $200,000 | 15-year draw period, 15-year repayment period | Not specified |
| Spring EQ | Fill out application for personalized rates | N/A | $50,000 – $500,000 | 10-year draw period, 20-year repayment period | 90% for home equity loans, not specified for HELOCs |
| KeyBank | From 7.25% (0.25% KeyBank client discount included) | N/A | From $10,000 | 15-year draw period, 15-year repayment period | 90% |
| Third Federal Savings & Loan | 6.99% | N/A | $10,000 – $200,000 | 10-year draw period, 30-year repayment period | 80% |
| PNC Bank | Fill out application for personalized rates | N/A | $10,000 – $1 million | 10-year draw period, 30-year repayment period | 89.90% |
| Frost Bank | 8.50% to 18% (0.25% autopay discount included) | N/A | From $8,000 | 10-year draw period, 20-year repayment period | 80% |
| Regions Bank | 8.50% to 15.375% (Regions client discount included) | N/A | $10,000 – $500,000 | 10-year draw period, 20-year repayment period | 95% |
| Citizens | From 8.00% (0.25% autopay discount included) | N/A | From $5,000 | 10-year draw period, 15-year repayment period | 80% |
| BMO Harris | From 7.74% (0.50% autopay discount included) | 5.99% for first six months OR 6.49% for 12 months | From $10,000 | 10-year draw period, 20-year repayment period | 70% |
| Flagstar Bank | 8.24% to 21.00% (0.25% autopay discount included) | N/A | $10,000 – $1 million | 10-year draw period, 20-year repayment period | 89.99% |
| Truist | 8.90% to 15.50% | 7.24% for first 12 months | From $10,000 | 10-year draw period, 20-year repayment period | 85% |
| Figure | Fill out application for personalized rates | N/A | $15,000 – $400,000 | Five, 10, 15, or 30 years | 95% |
| PenFed Credit Union | From 8.125% | N/A | $25,000 – $1 million | 10-year draw period, 20-year repayment period | 90% |
Note: The above APRs are current as of May 1, 2023. Your APR will depend on factors such as your credit score, income, loan term and whether you enroll in autopay or other lender specific requirements.
U.S. Bank
U.S. Bank offers both home equity loans and HELOCs in 47 states (not including Texas, South Carolina and Delaware). Interest-only HELOCs are available to qualified borrowers. You also have the option to lock all or part of your outstanding HELOC balance into a fixed-rate option during your draw period. Available loan amounts for HELOCs and home equity loans range from $15,000 to $750,000, and up to $1 million for properties in California.
There are no closing costs on home equity loans or HELOCs from U.S. Bank. There’s an early closure fee for HELOCs -- 1% of the line amount ($500 max) -- if you close your HELOC within 30 months of opening. In addition, HELOC borrowers may be charged an annual fee, up to $90. This fee can be waived with a U.S. Bank Platinum Checking Account.
You can apply for a U.S. Bank home equity loan or HELOC online, by phone or by visiting a branch in person.
Our take: We like U.S. Bank because of its extensive nationwide availability, many customer support options and price transparency -- meaning you can get a personalized rate quote and fee information by filling out some basic information, no credit check required.
Read our full lender review here.
- Extensive nationwide availability -- 47 states for both home equity loans and HELOCs
- Option to lock all or part of your outstanding HELOC balance into a fixed-rate option three times during your draw period
- Can apply online, over the phone, or in person at a branch
- Many customer support options
- $90 annual for HELOCs if you don’t have a U.S. Platinum Checking Package
- Early closure fee if you close your HELOC within 30 months of opening
- Not available in Texas, Delaware or South Carolina
- Preferred rates only available to people with a U.S. Bank checking account
- HELOC APR: 8.20% to 12.80%
- Loan amount: $15,000 – $750,000, up to $1 million for properties in California
- HELOC terms: 10-year draw period, unspecified repayment period
- Maximum LTV ratio: 80%
TD Bank
TD Bank offers home equity loans and HELOCs in 15 states, with the option of an interest-only HELOC and a rate-lock HELOC. Loan amounts for HELOCs start at $25,000.
Closing costs for HELOCs only exist on loan amounts greater than $500,000, but you’ll have to pay a $99 origination fee at closing regardless of your loan amount. There’s also an annual fee of $50 on HELOCs unless the amount is less than $50,000. You will be charged an early termination fee -- 2% of the outstanding balance -- if you close your HELOC within 24 months of opening. Additionally, you will receive a 0.25% rate discount if you set up auto-pay from a TD personal savings account.
You can apply for a TD Bank home equity loan or HELOC online, by phone or by visiting a branch in person. The online application includes a calculator that will tell you the maximum amount you can borrow based on the information you input. You can also see a full breakdown of rates, fees and monthly payments by entering some basic information online. No credit check is required for this service.
Our take: Though its nationwide availability is limited, TD Bank ranks highly for its price transparency and wide variety of product offerings – including interest only and rate-lock options on its HELOCs. The bank’s good online user experience, price transparency and customer service options stand out to us.
Read our full lender review here.
- 0.25% rate discount if you set up autopay from a TD personal checking account
- Wide range of product offerings
- Options to apply in person, on the phone or online
- No hard credit check to see personalized rates
- Only offered in 15 states: Connecticut, Delaware, Florida, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia and the District of Columbia.
- $99 origination fee for both home equity loans and HELOCs
- Early termination fee -- 2% of outstanding balance -- if you close your HELOC within 24 months of opening
- $50 annual fee on HELOCs with line amount greater than $50,000
- HELOC APR: 7.84% (0.25% TD checking account discount included)
- Loan amount: From $25,000
- HELOC terms: 10-year draw period, 20-year repayment period
- Maximum LTV ratio: 89.99%
Connexus Credit Union
Connexus Credit Union offers home equity loans and HELOCs in 46 states (excluding Alaska, Hawaii, Maryland and Texas). Loan amounts for home equity loans and HELOCs range from $5,000 to $200,000. This credit union also offers an interest-only HELOC.
Because Connexus is a credit union, its products and services are only available to its members. Member eligibility is open to most people; you (or a family member) need to be a member of one of the credit union’s partner groups, reside in one of its communities, or counties, or become a member of the Connexus Association with a $5 donation to its partner nonprofit, Connexus Association.
Connexus doesn’t specify any rate discounts, but it does advertise an introductory rate for the first six months of your loan term. You won’t have to pay an annual fee for a home equity loan or HELOC with Connexus, but closing costs can range from $175 to $2,000 depending on the loan terms and property location.
To apply for a home equity loan or HELOC with Connexus, you can fill out a three-step application online. You won’t be able to see a personalized rate without a credit check.
Our take: Connexus offers expansive nationwide availability and a few different product options, part of the reason this lender ranked highly for us. Its straightforward application process and relatively easy membership requirements is another bonus.
Read our full lender review here.
- No annual fee
- Available in 46 states
- Membership requirements for the credit union are relatively easy to meet
- Potential for high closing costs
- Won’t be able to see a personalized rate without a credit check
- Not available in Alaska, Hawaii, Maryland and Texas
- HELOC APR: From 4.49%
- Introductory APR: 4.50% for the first six months, 7.99% thereafter
- Loan amount: $5,000 to $20,000
- HELOC terms: 15-year draw period, 15-year repayment period
- Maximum LTV ratio: Not specified
Spring EQ
Spring EQ operates in 41 states and offers home equity loans, HELOCs and interest-only HELOCs. Home equity loan amounts range from $5,000 to $500,000, while HELOC line amounts range from $50,000 to $500,000. You must have a minimum credit score of 680 and a debt-to-income ratio of 45% or less.
Loans may be subject to an origination fee of $995 and an annual fee of $99 in some states. Spring EQ doesn’t specify any discounts and they don’t display any rates without an application.
However, the loan application process is transparent and easy to understand. You can see an extensive breakdown of their loan options without needing to undergo a credit check or provide their social security number.
Our take: We like that borrowers can get pre-qualified for Spring EQ loan with only basic information. This makes it easy to compare rates without needing to provide sensitive information or undergo a hard credit check. Additionally, the online application experience is user-friendly with an easily digestible breakdown of rates, fees and terms.
Read our full lender review here.
- No credit check required to see personalized rates
- Available in 38 states
- Transparent and easy to understand application process
- High origination fee of $995
- Minimum credit score of 680 is required (minimum credit score of 700 is required for preferred rates)
- Potential for a $99 annual fee
- Does not offer loans in Alaska, Hawaii, Idaho, Missouri, New York, North Dakota, South Dakota, West Virginia or Wyoming
- HELOC APR: Fill out application for personalized rates
- Loan amount: $50,000 to $500,000
- HELOC terms: Not specified
- Maximum LTV ratio: 90% for home equity loans, not specified for HELOCs
KeyBank
KeyBank offers home equity loans in 15 states and HELOCs in 44 states. Aside from a standard HELOC, KeyBank also offers interest-only and rate-lock options. HELOCs have loan amounts of $10,000 and up.
KeyBank HELOCs come with an annual fee of $50, but no closing costs unless your closing is performed by a closing agent. In that case, a closing fee could be up to $400. KeyBank offers a 0.25% rate discount for clients who have eligible checking and savings accounts with KeyBank.
The KeyBank application allows you to apply for multiple products at one time. If you’re not sure whether KeyBank loans are available in your area, the application will tell you once you input your zip code. If you’re an existing KeyBank user, you’ll have the option to skim through the application and import your personal information from your account.
Our take: KeyBank’s extensive product offerings stand out to us. In addition, the lender’s streamlined application process for existing users is useful. But, both existing and new users will appreciate the online user experience and availability of customer service options from KeyBank.
Read our full lender review here.
- Wide range of product offerings
- Streamlined application process -- particularly for existing KeyBank account holders
- 0.25% discount for clients with eligible checking AND savings accounts with KeyBank
- $50 annual fee
- $400 closing fee is closing is performed by a closing agent
- HELOC APR: From 7.25% (0.25% KeyBank client discount included)
- Loan amount: From $10,000
- HELOC terms: 15-year draw period, 15-year repayment period
- Maximum LTV ratio: 90%
Third Federal Savings & Loan
Third Federal Savings & Loan offers HELOCs in 26 states and home equity loans in only eight states. HELOCs are available in amounts from $10,000 to $200,000. A HELOC from Third Federal comes with a 10-year draw period and 30-year repayment period.
Overall fees tend to be low. Third Federal doesn’t require you to pay an origination fee or closing costs, and the annual $65 fee is waived your first year. Plus, if you find a different lender that offers a lower interest rate, Third Federal says it will match the rate or pay you $1,000 if it can’t.
You can apply for a home equity loan or HELOC on the Third Federal website. Both applications are included on the same page along with multiple rate and term options, allowing you to assess what will be best for you.
Another benefit is that there are no minimum draw requirements, which is ideal with a HELOC because you don’t have to waste money paying interest on funds you never use.
Our take: We like Third Federal’s application process and the lender’s price transparency. The lender’s website also features a helpful comparison tool if you’re unsure of what kind of home equity product you’re looking for. Third Federal’s rate match guarantee stands out to us, particularly in a rising rate environment.
Read our full lender review here.
- No application, closing or origination fee
- Rate match guarantee, up to $1,000
- Long repayment period -- 30 years
- $65 annual fee (waived the first year)
- HELOCs are only available in 26 states
- HELOC APR: 6.99%
- Loan amount: $10,000 to $200,000
- HELOC terms: 10-year draw period, 30-year repayment period
- Maximum LTV ratio: 80%
PNC Bank
PNC Bank operates in 44 states. While PNC doesn’t offer home equity loans, it does offer both variable-rate and fixed-rate HELOCs. PNC has large loan limits of up to $1 million, which provides flexibility if you need continued access to large amounts of cash for a major life expense such as home renovations or college tuition.
PNC HELOCs are also good for their long repayment periods -- 30 years. A long repayment period generally means lower monthly payments (but more interest paid in the long run). PNC also gives you the option to fix your interest rate repeatedly over the course of your HELOC’s draw period, but you must pay a $100 fee every time you do so.
Borrowers can receive a 0.25% discount when they set up and maintain automatic payments from a qualifying PNC checking account. There’s a $50 annual fee for HELOC borrowers, except in Texas.
PNC doesn’t show their rates online. You must fill out an application first to see personalized rates, but the site is user-friendly. You can estimate your home equity with an easy-to-use calculator.
Our take: We like PNC Bank because of its range of product offerings and straightforward application. The bank is also transparent about its rates, fees and terms without requiring a credit check. Though PNC doesn’t offer home equity loans, it has good nationwide availability for HELOCs.
Read our full lender review here.
Frost Bank
Headquartered in San Antonio, Texas, Frost Bank’s products are only available to Texas residents. They offer home equity loans, HELOCs and interest-only HELOCs. Home equity loans come with loan amounts of $2,000 and up, while HELOCs come with line amounts of $8,000 and up.
Frost Bank doesn’t require an application fee or annual fee. There are also no closing costs for the borrower. If you set up automatic payments from a Frost Bank checking or savings account, you’ll be eligible for a 0.25% rate discount.
You can apply for a home equity loan or HELOC on the Frost Bank website, but first you’ll need to create an account. According to the bank, the application will only take you about 15 minutes. If you’re not located in Texas, you won’t be able to apply.
Our take: Though Frost Bank’s nationwide availability is very limited, the bank has a helpful product selection tool, easy application process and good price transparency – making it a good option for Texas borrowers.
Read our full lender review here.
- No application, annual or closing fees
- 0.25% autopay discount with a Frost checking or savings account
- Quick application process
- Only available in Texas
- Have to create an account to apply
- HELOC APR: 8.50% to 18% (0.25% autopay discount included)
- Loan amount: From $8,000
- HELOC terms: 10-year draw period, 20-year repayment period
- Maximum LTV ratio: 80%
Regions Bank
Regions Bank serves people across the South, Midwest and Texas. Regions offers home equity loans and HELOCs in 15 states. HELOC offerings include a rate-lock option for those who want it. Home equity loans have amounts of $10,000 to $250,000 and HELOCs have line amounts ranging from $10,000 to $500,000.
For home equity loans and HELOCs, Regions offers rate discounts between 0.25% and 0.50% to those who opt into automatic payments from a Regions checking account. While home equity loans have no closing costs, HELOCs can have closing costs between $150 and $2,000. Regions will pay these costs if the HELOC amount is $250,000 or less.
You can apply for a Regions home equity loan or HELOC online, in-person, or over the phone. You have to create an account with Regions to apply, though you can use the bank’s rate calculator to estimate your rate and payment amount beforehand.
Our take: While Regions only offers its products in 15 states, it gives people in these states the flexibility to choose between home equity loans, HELOCs and rate-lock HELOCs. We also like the different application and customer service options Regions offers.
Read our full lender review here.
- 0.25% or 0.50% autopay discounts available
- High maximum LTV ratio -- 95%
- Regions will pay closing costs if your line amount is $250,000 or less
- Closing costs between $150 and $2,000
- Only available in 15 states (Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee and Texas)
- HELOC APR: 8.50% to 15.375% (autopay discount included)
- Loan amount: $10,000 to $500,000
- HELOC terms: 10-year draw period, 20-year repayment period
- Maximum LTV ratio: 95%
Citizens
Citizens offers standard and interest-only HELOCs to borrowers in 19 states. The bank doesn’t offer home equity loans at all. Line amounts for HELOCs start from $5,000.
Citizens won’t require any application fees or closing costs, but you will have to pay a $50 annual fee (waived the first year of your draw period). According to the Citizens website, obtaining the best rate requires having a Citizens checking account with automatic monthly payments set up. In states where Citizens doesn’t offer checking accounts, you can get the same discount with automatic payments set up from any checking account.
You can apply for a HELOC on the Citizens website, but you also have the option to speak with a loan specialist on the phone. You need to sign up with a phone number and email to access the application.
Our take: Because Citizens’ products are limited to 19 states, this bank may be a better option for existing account holders or people currently residing in one of those states. We ranked Citizens highly for its price transparency, responsive customer service and range of HELOC options.
Read our full lender review here.
- 0.25% autopay discount
- No application fee or closing costs
- Low minimum loan amount -- $5,000
- Does not offer home equity loans
- Only available in 29 states: Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Vermont, Virginia, and the District of Columbia.
- $50 annual fee after the first year of your draw period
- HELOC APR: From 8.00% (0.25% autopay discount included)
- Loan amount: From $5,000
- HELOC terms: 10-year draw period, 15-year repayment period
- Maximum LTV ratio: 80%
BMO Harris Bank
BMO Harris (a subsidiary of the Canadian financial services company Bank of Montreal) has products and services available in 48 states (all but New York and Texas). BMO Harris offers standard and interest-only HELOCs as well as an option to lock in your balance at a fixed rate. The bank also offers home equity loans. HELOC line amounts start from $10,000.
There’s no application fee for home equity loans or HELOCs with BMO Harris. In addition, BMO Harris will pay closing costs for loans secured by an owner-occupied one-to-four-family residence. Borrowers will have to pay a $75 annual fee. The minimum credit score required is 650 to 680. If you set up autopay from a BMO Harris checking account, you’ll be eligible to receive a 0.50% rate discount.
You can apply for a home equity loan or HELOC online or in-person. You can get personalized rates without a hard credit check, but you’ll have to speak with a representative on the phone.
Our take: We like that BMO Harris offers both home equity loans and three types of HELOCs almost nationwide. However, the online application requires your social security number and is less straightforward than its competitors.
Read our full lender review here.
- 0.50% autopay rate discount
- Personalized rates available without a hard credit check
- Introductory APRs available for first six months or first 12 months
- Application requires your social security number
- Minimum credit score 650 to 680
- Not available in New York or Texas
- HELOC APR: From 7.74% (0.50% autopay discount included)
- Introductory APR: 5.99% for first six months or 6.49% for first 12 months
- Loan amount: From $10,000
- HELOC terms: 10-year draw period, 20-year repayment period
- Maximum LTV ratio: Not specified
Flagstar Bank
Flagstar Bank offers home equity loans and HELOCs in 49 states (all but Texas) -- but check your specific ZIP code for availability. Available loan amounts for home equity loans and HELOCs range from $10,000 to $1 million.
HELOCs with Flagstar require an additional $75 fee, but it is waived the first year. To avoid closing fees, you’ll have to keep your HELOC open for at least 36 months. There’s a 0.25% rate discount for borrowers who have monthly automatic payments set up from a Flagstar bank deposit account.
Flagstar doesn’t have a full online application, only a form where you can submit your information to be contacted by a representative. You can get a custom rate based on a soft credit check and some additional information. Flagstar’s tedious application process may be frustrating, but the lender offers several customer support options, including 24-hour loan support over the phone.
Our take: While its nationwide availability for HELOCs is strong, Flagstar’s tedious application process and lack of price transparency may be a drawback for people seeking a quick, easy process. We like the lender’s range of customer service options, including 24-hour loan support via phone, so this may be appealing to those who enjoy accessible communication with customer service.
Read our full lender review here.
- 0.25% autopay discount
- 24-hour loan support over the phone
- Strong nationwide availability
- Doesn’t have a full online application
- Personalized rates require a soft credit check
- HELOC APR: 8.24% to 21% (0.25% autopay discount included)
- Loan amount: $10,000 to $1 million
- HELOC terms: 10-year draw period, 20-year repayment period
- Maximum LTV ratio: 89.99%
Truist
Truist offers standard, interest-only and rate-lock HELOCs to borrowers in 15 states, primarily in the Southeast. Truist doesn’t offer home equity loans at all. HELOC line amounts start at $10,000 on up.
Truist doesn’t specify rate discounts. When closing, the borrower will have the option to pay closing costs themselves or advance them (have Truist pay them). If you choose the latter, you won’t have to reimburse Truist for the closing costs if you keep your account open for at least three years. There’s a $50 annual fee in some states.
You can apply for a HELOC on Truist’s website. You won’t be required to sign up for an account, but if you already have one with Truist, you’ll be able to auto-fill your application. Truist advertises that the turnaround time between application to closing averages 30-35 days, that’s one of the fastest times among its bank beers (not including newer, non-traditional start-up companies like Figure).
Our take: Truist’s fast funding stands out to us. However, Truist falls short on price transparency. You’ll have to submit an application and undergo a credit check to get personalized rates.
Read our full lender review here.
- You can receive your funds within 30-35 days
- Streamlined application process for existing Truist users
- Maximum LTV ratio of 85%
- Only available in 18 states (Alabama, Arkansas, California, Florida, Georgia, Indiana, Kentucky, Maryland, Mississippi, North Carolina, New Jersey, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia and the District of Columbia)
- Doesn’t offer home equity loans
- $50 annual fee in some states
- Credit check required to see personalized rates
- HELOC APR: 8.90% to 15.50%
- Introductory APR: 7.24% for the first 12 months
- Loan amount: From $10,000
- HELOC terms: 10-year draw period, 20-year repayment period
- Maximum LTV ratio: 85%
Figure
Figure uses a unique combination of technology and banking to provide people in 44 states with HELOCs. Though officially called a HELOC, Figure’s HELOC has characteristics of both a traditional HELOC and a home equity loan. Borrowers will withdraw the full line amount (minus the origination fee) at the time of origination. Once they repay the initial balance at a fixed rate, they will be able to make additional draws over a specified period. Available line amounts range from $15,000 to $400,000.
A HELOC with Figure has no closing costs, but the borrower will be responsible for an origination fee of up to 4.99% of the initial draw, depending on the state and the borrower’s credit profile. You may also have to pay a recording fee if your county requires it. Borrowers may receive a rate discount of up to 0.75%; 0.50% for opting into a credit union membership and 0.25% for enrolling in autopay.
Figure says it will deliver funds in as little as five days. The application is entirely online and takes about five minutes to complete.
Our take: Figure’s main draws are its fast funding and easy to navigate website with an accompanying chat-bot. However, Figure only offers a single product, which might not be right for everyone.
Read our full lender review here.
- Unique lump-sum HELOC offering
- Rate discount of up to 0.75%; 0.50% for opting into a credit union membership and 0.25% for enrolling in autopay
- Receive funds in as little as five days
- Quick and easy to navigate online application
- Only offers one product
- Origination fee of up to 4.99% of initial draw
- Not available in Delaware, Kentucky, Maryland, New York, Texas or West Virginia
- Minimum credit score of 620 (720 in Oklahoma)
- HELOC APR: Fill out application for personalized rates
- Loan amount: $15,000 to $400,000
- HELOC terms: Five, 10, 15 or 30 years
- Maximum LTV ratio: 95%
PenFed Credit Union
The Pentagon Federal Credit Union (widely known as PenFed) offers HELOCs in all 50 states, as well as Guam, Puerto Rico and Okinawa. PenFed is a credit union so its products are only available to members, but you can easily become a member by opening a PenFed savings account and funding it with at least $5. With PenFed, you can choose between a standard, interest-only or rate-lock HELOC with line amounts running from $25,000 to $1 million. PenFed doesn’t offer home equity loans.
HELOCs with PenFed have an annual fee of $99 unless you have $99 in interest during the preceding year. PenFed will pay most closing costs, but for credit lines greater than $500,000, the borrower will likely be responsible for closing costs. No rate discounts are specified.
To apply for a HELOC with PenFed, you’ll have to request a callback over the phone. This feature may be a major drawback for people who prefer online services and applications.
Our take: PenFed may be a good option for borrowers in US territories who don’t have many other alternatives when it comes to home equity lenders. Membership eligibility for the credit union is also relatively easy to meet. However, PenFed’s application process is more tedious than other lenders, requiring applicants to request a callback from the credit union.
Read our full lender review here.
- Available in all 50 states, as well as Guam, Puerto Rico and Okinawa
- Wide range of HELOC offerings
- Membership requirements for the credit union are relatively easy to meet
- No online application process
- Closing costs for credit lines greater than $500,000
- Doesn’t offer home equity loans
- HELOC APR: From 8.125%
- Loan amount: $25,000 to $1 million
- HELOC terms: 10-year draw period, 20-year repayment period
- Maximum LTV ratio: 90%
What is a HELOC?
A home equity line of credit, or HELOC, allows you to access your home’s equity without changing your primary mortgage’s interest rate. When you borrow with a HELOC, you use the difference between your home’s value and what you owe on your mortgage as collateral. Because a HELOC is a secured loan, you can often get a more competitive rate than with, say, a personal loan or credit card. However, if you default on your payments for a home equity loan or HELOC, you risk losing your home.
A HELOC offers you a revolving line of credit, meaning you don’t receive all your funds at once. Your loan will be split up into two periods: the draw period and the repayment period. During the draw period, you can take out money as many times as you need, as long as it’s below your total loan amount. You must make minimum monthly payments, typically just for the interest that accrues during the draw period. Once the draw period ends, you enter the repayment period, which usually lasts between 10 to 20 years. At this point, you can no longer take any money out of your HELOC. Your monthly payments will increase during the repayment period because you must start paying back the principal (the amount you withdrew) in addition to the interest accrued.
HELOC vs. home equity loan
HELOCs and home equity loans are both secured loans. The main differences between a HELOC and a home equity loan are how your funds are distributed and the interest rate at which you repay your loan.
HELOCs work similarly to credit cards in that you can withdraw funds as needed during your draw period. HELOCs also typically have variable interest rates, meaning your monthly payment is subject to change as rates do.
With a home equity loan, on the other hand, you borrow a set amount of money and pay it back over time, typically at a fixed interest rate. That fixed interest rate means your monthly payment will be constant over the term of your loan. In a rising rate environment, it may be easier to factor a fixed payment into your budget.
When deciding between a home equity loan and HELOC, consider whether you need all the loan funds at once or spread out over time. In addition, ensure you can comfortably make the monthly payments -- particularly if you opt for a HELOC with a variable interest rate.
Alternatives to HELOCs
Home equity loan
Unlike a HELOC, a home equity loan is not a revolving line of credit, but a fixed-rate installment loan. You can borrow money in a lump sum upfront and then pay it off in fixed monthly installments over the loan term. There is one key similarity though: both home equity loans and HELOCs are secured loans that use your house as collateral.
If you prefer to receive all the funds from your loan upfront, a home equity loan is likely a better option than a HELOC. In addition, the certainty of a fixed interest rate may be an important factor -- particularly in a rising rate environment.
Personal loan
A personal loan can get you quick cash without needing to put your house up as collateral. They’re fixed-rate installment loans where you receive a lump sum of cash upfront and pay it back over the agreed-upon term, commonly ranging from two to seven years.
Because personal loans are unsecured debt, they tend to have higher interest rates than HELOCs or home equity loans. Most personal loans require good credit for approval, but bad-credit personal loan lenders do exist. If you have poor or fair credit, though, be prepared to pay a higher interest rate.
Cash-out refinance
In contrast to a HELOC, a cash-out refinance is when you sign up to replace your existing mortgage with a new bigger one. You then get difference in cash -- meaning you are quite literally cashing out the equity you’ve built up in your home.
Cash-out refinances are ideal if you can get a lower rate on your new mortgage, but that’s likely not possible if you bought before the mortgage rate surge of 2022. For those who don’t want to give up their low rate mortgage, a HELOC could be the better option to tap into their home equity.
How to get a HELOC
Applying for a HELOC is similar to applying for a mortgage. Before you do anything, though, make sure you have a grip on your financial situation. It’s important to have a plan for how you’ll use the funds from your HELOC and how you’ll pay it back. You’ll want to get an idea of your credit score and current loan-to-value ratio, as those factors can influence whether you qualify for a HELOC and what rates you could get.
- Research lenders and compare rates. First, narrow your search down to a list of lenders who meet your needs in aspects other than rates -- whether that means they have good customer service, in-person branches near your, or simply offer the product you’re interested in. Then, compare quotes from the lenders who meet your basic criteria to find the best rate.
- Have at least 15% to 20% equity in your home. Almost all lenders will require you to have at least 15% to 20% equity in your home before considering you for a home equity loan. If you do, lenders will then take into account your credit score, income and current DTI to determine whether or not you qualify as well as your interest rate. Some lenders may also require an appraisal of the home you’re using as collateral to assess it’s value.
- Be prepared to have financial documents at the ready, such as pay stubs and Form W-2s. Proof of ownership and the appraised value of your home will also be necessary. The lender may also pull your credit score from the credit bureaus as part of your application, which could temporarily lower your credit score by a few points.
- Close on your loan. Once you submit your application, the final step is closing on your loan. This typically takes a few weeks to a month. In some states, you’ll have to do this in person at a physical branch. After you close on your HELOC, your line of credit will be open and you can begin withdrawing funds.
Requirements for a HELOC
Although it varies by lender, to qualify for a HELOC you’re typically required to meet the following criteria:
- At least 15% to 20% equity in your home: Home equity is the amount of home you own. Subtract what you owe on your mortgage and other loans from the current appraised value of your house to get that number.
- Minimum credit score of 620: In general, maintaining a high credit score is essential to maintaining your overall financial health. Lenders use your credit score to determine the likelihood that you’ll repay the loan on time. Most lenders prefer to see a credit score of at least 700, but it’s possible to be approved with a lower score depending on your financial situation. However, a lower credit score is likely to result in a higher interest rate for your HELOC.
- A debt-to-income ratio of 43% or less: Divide your total monthly debts by your gross monthly income to get your DTI. Like your credit score, your DTI helps lenders determine your capacity to make consistent payments toward your loan. You can be denied for a HELOC if you have too much debt. Some lenders may prefer a DTI of 36% or less. If you have a high DTI, be prepared to be approved for a smaller loan or to be turned down outright.
- Adequate, verifiable income: Proof of income is a standard requirement to qualify for a HELOC. Have your tax returns, Form W-2s and pay stubs handy to show you have a consistent source of monthly income, and enough of it, to comfortably pay the HELOC in addition to your current mortgage. Check your lender’s website to see what forms and paperwork you will need to submit along with your application.
How to find the best HELOC lender
As with any major financing decision, it’s important to do your due diligence before committing to a loan. This is especially important when it comes to secured loans like HELOCs.
According to research from Freddie Mac, getting just one additional rate quote could save homeowners an average of $1,500 over the lifetime of their loan. And if you get five additional rate quotes, you can save an average of as much as $3,000, the Freddie Mac survey revealed.
“Applying for a HELOC is a highly personal decision. A loan secured by the equity in your home will generally offer lower rates than other alternatives, but the borrower must ensure they can repay the loan or risk losing the home,” Boyd says. “If there’s any concern that rising prices will impact your ability to afford the loan in the future, it may not be the best option.”
You don’t need to get your HELOC from the same lender through which you have your mortgage, though it may make sense to do so. Shopping for a different lender can help you secure a lower interest rate. However, remember that the rate you get with a HELOC is subject to change and your monthly payments will increase or decrease accordingly.
While many advertise rates, it’s likely your rate will look different based on what you qualify for. Depending on your DTI ratio, LTV ratio and loan amount, your rate may be higher or lower than the advertised rate. Lenders also tend to offer the lowest rates to borrowers with a good credit score and clean credit history.
When comparing lenders, be sure to ask questions upfront to understand what rates and fees are associated with your home equity loan. Also look out for any prepayment penalties that you might incur if you pay off your loan early.
Be sure to consider the lenders’ APRs in addition to the interest rates to get an idea of the true rate you are paying with fees included. Terms and fees vary between lenders, so what you want is a true apples-to-apples comparison.
The bottom line
A HELOC can be a cost-effective way to access a line of credit by borrowing against the equity you’ve built in your home. Being financially healthy by keeping your debt low and credit score high, as well as interviewing multiple lenders will not only help make you an attractive candidate for loan approval, but will help you secure the best rate and terms on a HELOC.
FAQs
A HELOC can be useful if you have big expenses coming up that you need cash to pay. Right now, HELOC rates are comparatively lower than other forms of financing, including personal loans and credit cards. A HELOC’s flexibility is ideal if you are unsure of how much money you will need and if you don’t need all of that money upfront. You can use the funds for almost anything but if you are unsure you’ll be able to comfortably pay the loan back, a HELOC is likely not worth the risk of losing your home.
A HELOC can be useful for large expenses, such as home renovations or paying for your child’s college tuition. It’s particularly good for ongoing expenses where you don’t know the exact sum of money you’ll need. Some of the most common uses for a HELOC include home improvements, college expenses, medical bills or debt consolidation.
But, avoid treating your HELOC like a credit card. Using your line of credit to fund one-time expenses, like a vacation, isn’t ideal. Explore other types of financing -- that aren’t secured by your home -- for such expenses.
There are several factors you should consider when searching for a HELOC, to ensure you get the best rate:
- Your credit score and history: Lenders will pull your credit score to determine your creditworthiness, just as they would for any other type of credit application. Having good credit, or improving your credit before you apply, can increase your chances of getting a more favorable rate.
- Your home equity: The more equity you have, the more it will positively affect your loan-to-value ratio. LTV is a metric used to measure the relationship between how much you owe on your mortgage and the market value of your home. The more equity you have, the lower your LTV will be and the better you’ll look to lenders.
- The lender: Different lenders offer different rates. Make sure to shop around and consider all of the options for HELOC rates, and don’t discount local credit unions or banks.
A HELOC is different from another common type of home equity financing: a home equity loan. While a HELOC is a variable-rate, revolving line of credit, a home equity loan is a fixed-rate installment loan. With a home equity loan, you get a sum of money when you take out the loan and pay it back in fixed monthly payments. With a HELOC, you can draw from a line of credit as much as you want during the draw period and pay it back with interest during the repayment period. Your monthly payment will depend on how much you draw and the current interest rate on your HELOC.
Methodology
We evaluated a range of lenders based on factors such as interest rates, APRs and fees, how long the draw and repayment periods are, and what types and variety of loans are offered. We also took into account factors that impact the user experience such as how easy it is to apply for a loan online and whether physical lender locations exist.
