A home equity line of credit (HELOC) provides a revolving credit line – secured by one’s home – that homeowners can use for purchases. (Here’s our guide on whether or not a HELOC could make sense for you.) And if you’ve been looking into these recently, you’ll see that some financial institutions are advertising HELOCs for 1.99%. But could you actually qualify for one of those rates, and what’s the catch with them? We asked a series of experts.
The first thing to know is that most of those rates are introductory rates for very well-qualified borrowers. For example, at both LA Financial and MCU credit union, the 1.99% offer (which we saw on January 26, 2022) was valid for six months, after which the rates rose. Greg McBride, chief financial analyst at Bankrate, gives this example: You might get “1.99% for 6 months, then reverting to the rate of say, 4%, prime plus 0.75%.” But that said, HELOC rates overall are still lower than most credit cards and personal loans (see the lowest HELOC rates you might qualify for here), with the average HELOC rates at roughly 4.26%, according to LendingTree.
Beyond the introductory rate, some well-qualified borrowers can still get a rate in the 3-4% range, pros say. According to Jacob Channel, LendingTree’s senior economist, those most likely to get that kind of rate on a HELOC are people with: 1) stellar credit scores of 760 and above, 2) those who shop around and compare different lenders for the best rates before applying for a loan, and 3) those who have quite a bit of equity in their homes. “The higher a borrower’s score and the more equity they’ve built into their house, the more appealing they’ll be to lenders and the more likely they are to get a great rate,” says Channel. Adds McBride: “Keeping your total borrowing, including both your first mortgage and the line of credit you’re seeking at no more than 80% of the home’s value is a common prerequisite for the best rates,” says McBride.
Additionally, other things can help you lower your rate, says Holden Lewis, home and mortgage expert at NerdWallet: Borrowers should ensure that “their monthly HELOC payment is automatically debited from another account with the same bank, they have a high credit score, and the credit line is for 70% or less of the home’s appraised value, ”says Lewis. And because different lenders offer different rates, those that shop around before applying for a HELOC increase their odds of getting the best possible rate.
All that said, keep in mind that a HELOC is not the right option for everyone, and that should you fail to repay it, you risk losing your home. What’s more, the rate a borrower gets can vary quite a bit – see the lowest HELOC rates you might qualify for here – so they’re not the most economical option in all cases either.